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URL:  http://boards.fool.com/elan-asked-can-you-explain-the-difference-between-26109676.aspx

Subject:  Re: Optimizing Blends with Sharpe/(GSD^x) Date:  11/17/2007  7:46 PM
Author:  Zeelotes Number:  203998 of 262212

Elan asked:
Can you explain the difference between the two results?

The test in this thread is based on ranks 1-4, while the test in the previous thread is off of ranks 1-10. I purposefully chose a lookback of 20 years for this test because the Sharpe and Sharpe/GSD had the exact same resulting Sharpe from the backtests. I wanted to put them on an even footing. Here is a table showing Ranks 1-10 as I posted before with Ranks 1-4 on the right side for comparison.
Ranks 1-10                                       Ranks 1-4               
Sharpe Jensen Sharpe Sharpe/GSD Treynor Sharpe Sharpe Sharpe/GSD
1 0.94 1.26 1.67 1.39 1 0.91 1.24
3 0.96 1.03 1.25 1.38 3 0.97 1.07
5 0.99 1.39 1.65 1.39 5 1.32 1.53
7 1.00 1.32 1.61 1.45 7 1.17 1.38
9 1.18 1.34 1.51 1.62 9 1.24 1.47
11 1.17 1.42 1.57 1.60 11 1.26 1.35
13 1.21 1.45 1.53 1.57 13 1.36 1.29
15 1.21 1.42 1.51 1.57 15 1.37 1.40
17 1.22 1.38 1.62 1.50 17 1.44 1.40
19 1.16 1.37 1.62 1.54 19 1.44 1.44
21 1.19 1.33 1.63 1.60 21 1.35 1.45
23 1.19 1.33 1.63 1.54 23 1.35 1.45
25 1.19 1.33 1.63 1.58 25 1.35 1.45
27 1.16 1.33 1.63 1.52 27 1.35 1.45
29 1.16 1.33 1.63 1.59 29 1.35 1.45

StevnFool asked:
You indicate that your first test started in 1999. Did you mean 1989?

No, it has to start in 1999 to put VL and SIPRO on a more or less even footing. Remember, this is investing in six screens with three from each.

My vote would be to stick with Sharpe/GSD (X=1). I'm not sure how much better it is as a predictor over Sharpe alone, but your results would suggest that it is not any worse.

I see it as better mainly because it consistently results in a much lower GSD. Let me illustrate:
  Years   Ranks 1-10              Ranks 1-4       
Lookback Sharpe Sharpe/GSD Sharpe Sharpe/GSD
1 29.78 16.42 21.20 10.91
3 27.80 20.73 22.14 13.16
5 22.46 14.58 16.05 9.75
7 20.25 15.17 16.52 9.82
9 19.91 14.54 18.03 9.84
11 20.17 15.11 16.56 9.71
13 19.81 15.23 16.89 10.06
15 19.66 15.47 16.67 10.01
17 19.72 15.40 16.49 10.00
19 19.72 15.48 16.19 10.06
21 20.29 15.34 16.33 10.09
23 20.29 15.34 16.33 10.09
25 20.29 15.34 16.33 10.09
27 20.2