How to use Deflated Sharpe Ratio Calculator
Bailey & Lopez de Prado deflated Sharpe — corrects observed Sharpe for selection bias across K trials. The page reports deflated Sharpe and PSR (probability of skill) so you can quantify how much of an apparent edge survives the multiple-testing penalty.
What It Does
Use the calculator with intent
Bailey & Lopez de Prado deflated Sharpe — corrects observed Sharpe for selection bias across K trials. The page reports deflated Sharpe and PSR (probability of skill) so you can quantify how much of an apparent edge survives the multiple-testing penalty.
Quants who picked the best strategy out of many trials and need an honest Sharpe to report after the selection-bias correction.
Interpreting Results
Deflated Sharpe below zero means the strategy is statistically indistinguishable from luck. PSR above 0.95 is the standard 'meaningful skill' threshold. Both should clear the bar before the strategy goes live.
Input Steps
Field by field
- 1
Enter inputs
Enter your strategy's raw Sharpe ratio, sample size (number of return observations), skewness, and excess kurtosis.
- 2
Enter inputs
Enter the total number of strategy variants tested — including the ones you discarded. This is critical: under-reporting trials inflates DSR.
- 3
Read outputs
Read DSR alongside raw Sharpe. The gap shows how much the multiple-testing penalty discounts your raw number.
- 4
Compare results
Compare DSR to thresholds: ≥0 weak, ≥1 moderate, ≥1.65 95% confidence, ≥2 actionable for live capital.
- 5
If
If DSR is negative, the deflation correction overwhelms the raw Sharpe — test a longer sample, fewer variants, or a different signal.
Common Scenarios
Use realistic starting points
Honest single test
Observed Sharpe
1.2
Sample length
5 years
Trials
1
Deflated Sharpe close to observed; PSR high. No selection bias, no penalty.
Hidden parameter sweep
Observed Sharpe
2.0
Sample length
3 years
Trials
100
Deflated Sharpe well below 2.0; PSR may fall below 0.95. The headline number doesn't survive the multiple-testing correction.
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FAQ
Questions people ask next
The short answers readers usually want after the first pass.
Related Content
Keep the topic connected
Overfitting
Overfitting in trading-strategy backtests: how multiple-testing inflates apparent edges and the diagnostics that catch it.
Bailey-Lopez de Prado PBO
Probability of Backtest Overfitting: a combinatorial test that estimates how likely your best in-sample strategy is to underperform out-of-sample.
Sharpe Ratio
Sharpe ratio defined, when it lies (skew, fat tails, autocorrelation), and how to read a Sharpe number you didn't compute yourself.