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Subject:  Re: The Best Measure for the Best Blend Date:  11/16/2007  6:13 PM
Author:  StevnFool Number:  203972 of 258126


I want to lay out an idea for further research if it interests you.

You have done a great job in demonstrating through testing the possible use of Sharpe/GSD as a useful prediction metric.

I have commented many times before that (CAGR-rfr)/GSD is a reasonable substitute for Sharpe when looking at our typical screens and where rfr = the average risk free rate over the backtest period. RRR4 as suggested by me a long time ago and as used by some is the version of this that uses 4% as the risk free rate.

My main point here though is that Sharpe essentially has a CAGR component in its numerator and a GSD component in its demoninator. When I originally suggested the idea of looking for low GSD screens which ultimately led to using Sharpe/GSD, the logic was that the GSD component of the Sharpe ratio is a better predictor than the CAGR component and thus the GSD component needs to get extra weight. We started doing this by selecting low GSD screens first before selecting the