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Investing/Strategies / Mechanical Investing
|Subject: Re: Optimizing Blends with Sharpe/(GSD^x)||Date: 11/18/2007 6:25 PM|
|Author: StevnFool||Number: 204043 of 256302|
What conclusions can we reach in your view based on the data presented to date?
I think you have made a compelling case that Sharpe/GSD is more predictive of future Sharpe than Sharpe. The additional data that you have posted since your initial post in the thread have helped confirm this in my mind.
In relation to Treynor, I don't know enough about it to comment. An advantage of Sharpe/GSD is that the public backtesters tend to spit out the data needed to calculate it easily.
Back to the prediction of the Sharpe Ratio of a future blend. Lets say you choose to use Sharpe/GSD as your metric to select your blend. Have you done any testing to indicate which of the following methodologies is more predictive of future Sharpe.
1) Optimizing to select a blend with max value of past Sharpe/GSD.
2) Sorting all screens by past Sharpe/GSD and picking the top X screens and possibly removing some high overlap screens and going down the list a bit deeper.
Option 1) will give a blend with a higher overall backtest Sharpe/GSD, but may include individual screens with significantly lower backtest Sharpe/GSD values. Will these lower Sharpe/GSD screens reduce the overall predictability of the blend?
I believe you tend to favour sorting over optimizing and I think this goes back to sorting or optimizing on Sharpe, but I am wondering have you done any testing to show if one method is superior to the other.
Thanks for all you have done. I think blend selection is a key part of MI. At this stage in the evolution of MI, I believe it is more important that finding new screens.
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