The percentage profit or loss of an investment relative to the benchmark.
Appearance of the indicator.
SARM is the percentage gain or loss of an investment relative to an investment benchmark. A benchmark can be market comprehensive, such as the Standard and Poor's 500 Index (S&P 500), or industry specific, such as the Dow Jones US Financials Index.
The active return is the difference between the benchmark and the actual return. It can be positive or negative and is typically used to evaluate the performance of investment returns.
A portfolio that outperforms the market has a positive active return (SARM) assuming the market as a whole is the benchmark. For example, if the benchmark return is 5% and the actual return is 8%, the active return would be 3% (8% - 5% = 3%). If the same portfolio only yielded 4%, it would have a negative active return of -1% (4% - 5% = -1%).
Ethereum vs Bitcoin.
If the benchmark is a certain segment of the market, the same portfolio could hypothetically underperform the broader market and still have a positive active return compared to the chosen benchmark. That's why it's critical for investors to know which benchmark a strategy is using and why.
Chainlink vs DeFi index.
<aside> 💡 SARM is a more sensitive version of CARM. The example below shows the relationship of Trellor relative to the benchmark, as well as the spread between Trellor and the benchmark. Important assumption: it is not correct to make a direct correlation, because SARM is calculated for a period and also takes into account risk-free yield. The spread is calculated solely on the basis of realtime data.
</aside>
Trellor vs Bitcoin.
The Standardized Active Return Measure (SARM) indicator measures the relative active return of a portfolio compared to a benchmark asset, using the standard deviation of the active return as a measure of risk.
Calculating the average HLC3 over $n$ periods:
$$
\overline{HLC3}t = \frac{ \sum{i=0}^{n-1} HLC3_{t-i} }{n}
$$
Where:$HLC3_t = \frac{H_t + L_t + C_t}{3}$ is the upward price movement on the $t$ -th bar,$n$ is the number of candles to calculate the average.
Calculation of HLC3 deviation from the average value:
$$ D_t = HLC3_t - \overline{HLC3}_t $$