stats·Statistics & risk
DSR
Deflated Sharpe Ratio (Bailey & López de Prado). The probability that a strategy's true Sharpe beats the best Sharpe you'd expect from luck alone, given how many variants you tried, the sample length, and fat tails or skew in the returns. A DSR of 0.95 means 95% confidence the edge is not a data-mining artifact.
formula
DSR = Φ[ (SR̂ − SR₀)·√(T−1) / √(1 − γ̂₃·SR̂ + ((γ̂₄−1)/4)·SR̂²) ], where SR₀ is the expected maximum Sharpe across N trials, T the number of returns, γ̂₃ skew and γ̂₄ kurtosis
How the desk uses this
Statistics and risk terms like this one are the backbone of position sizing and honest results — not vibes, math.