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|Subject: Optimizing Blends with Sharpe/(GSD^x)||Date: 11/17/2007 6:25 AM|
|Author: Zeelotes||Number: 203981 of 263003|
In the thread The Best Measure for the Best Blend it was suggested that I try testing using a revised Sharpe/GSD. This suggestion came from JeffLandon in post # 203950 and StevnFool in # 203972. I went ahead and had this programmed into my backtester such that I can now test the following:
CAGR / (GSD^x)
CAGR / (UI^x)
CAGR / (UPI^x)
Sharpe / (GSD^x)
x can be set to any value whether positive or negative. To illustrate, let me share a little table I put together that will hopefully make this simpler for those who are a bit challenged by all this -- like me. :)
Sharpe GSD Ratio Parameter x Consequence
Of course, when GSD is underweighted that means that Sharpe is overweighted and vice versa.
In the test I'm about to share I set it up with the following parameters:
So every year I invest in six screens -- three from VL and three from SIPRO. Each screen has ranks from one to four, resulting in a blend of 24 stocks in all.
The Results of the Backtest
These results show that there is little to no advantage to using this formula compared to just a default of Sharpe/GSD -- which is the 1.00 / 1.00 below. I'd guess the minor difference that there is isn't anything more than noise. The Parameter x on the left is the one for the Value Line screens while the one on the right is for the SIPRO sort.
Parameter x Parameter x CAGR GSD Sharpe Ulcer Index