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URL:  http://boards.fool.com/elan-asked-can-you-explain-the-difference-26109883.aspx

Subject:  Re: Optimizing Blends with Sharpe/(GSD^x) Date:  11/17/2007  9:48 PM
Author:  elann Number:  204010 of 250344

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



This demonstrates how easy it is to lie, or be misled, by statistics. I don't think you meant to lie or mislead. But by presenting only the 20 lookback for the 4 stock screens in the prior message, I thought you were saying there was no difference between ranking by Sharpe and ranking by Sharpe/GSD. I don't think that was the intended conclusion.

Elan
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