EPAT Practice Test

1Single Choice

A quantitative researcher computes the daily returns of a strategy and obtains a mean of 0.05% and a standard deviation of 1.2%. What is the most appropriate interpretation of these statistics when evaluating the strategy's risk-adjusted performance?

A.A mean return of 0.05% per day indicates the strategy is unsuitable for any live deployment because the expected value is positive.
B.The standard deviation of 1.2% measures the dispersion of daily returns and serves as the denominator in the Sharpe ratio for risk-adjusted evaluation.
C.The mean return of 0.05% is the same as the strategy's Sharpe ratio and can be used directly to compare against a benchmark.
D.The standard deviation of 1.2% is the maximum daily loss the strategy can experience under any market regime.

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