LogReturn

Description

The LogReturn function computes the natural logarithm of the ratio between an element and the element delay positions before it. This function is a key tool in financial analysis for modeling continuously compounded returns, as it provides a symmetric measure for gains and losses.

Equation:

\[ y[i] = \ln \left(\frac{x[i]}{x[i - \text{delay}]}\right) \]

Parameters:

• delay (int): The number of steps backward to use for calculating the log return. Must be non-negative.

NaN handling: When delay exceeds the available data points at the start of the sequence or if x[i - \text{delay}] is zero or negative (to avoid invalid operations in the logarithm), the output is set to NaN.

Usage Example and Plot

import numpy as np
import plotly.graph_objects as go
from plotly.subplots import make_subplots
from screamer import LogReturn

data = np.exp(0.1*np.cumsum(np.random.normal(size=50)))
log_return_data = LogReturn(3)(data)

fig = make_subplots(rows=2, cols=1, shared_xaxes=True, row_heights=[1/2, 1/2], vertical_spacing=0.1)

fig.add_trace(go.Scatter(y=data, mode='lines+markers', name='Original Data'), row=1, col=1)
fig.add_trace(go.Scatter(y=log_return_data, mode='lines+markers', name='Log Return (3-step)', line=dict(color='purple')), row=2, col=1)

fig.update_layout(
    title="Log Return Computation (3-step Delay)",
    xaxis_title="Index",
    yaxis_title="Original Data",
    yaxis2_title="Log Return",
    margin=dict(l=20, r=20, t=60, b=20),
    legend=dict(orientation="h", yanchor="bottom", y=1.02, xanchor="right", x=1)
)

fig.show()

Implementation Details

LogReturn performs element-wise computation of the natural logarithm of the return ratio using array operations. To ensure the validity of results, it checks for non-positive denominators and sets the output to NaN where such conditions are detected. The function is optimized for speed and handles large data sets efficiently.