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Subject:  Re: Blending at a Whole New Level Date:  7/25/2008  8:12 AM
Author:  Zeelotes Number:  211498 of 263534

I'm getting ready to wrap up this new research related to blending. Before I do, I thought I'd post what I would consider the best that I have to offer on the subject of what is the optimal way to sort screens for bearish and bullish periods. This is based on millions of data points, and hundreds of tests. The tables that follow are the result of taking all of that and finding what measure had the best return. I did this by taking the 78-88 VL test, the 89-08 VL test and the 99-08 SIPRO test. I found the ranking for each of these tests for each measure, then I averaged the ranks. I did this first for all three, and then again, just for the 89-08 VL test and the 99-08 SIPRO test. I personally put more weight on the latter two since the earlier test has so few screens to sort off from.

What these tables will answer is this:

Which sorting measure has produced the highest forward return on a blend when used to select five screens holding ranks 1-4 from each for a total hold of twenty stocks?

My conclusion from all of this testing is not so much that one particular measure most definitely stands out in the crowd, but rather that quite a few are consistent winners. Choosing nearly any of these from the top wouldn't hurt. In fact, it may also be possible to choose to blend the results that would come from the top five. Say five stocks from each measure resulting in choosing five screens for each measure so going with the top four measures would result in actually holding twenty stock positions.
    Bullish Periods            All 3  VL-SIPRO
All Combined Sort Avg Avg.
Alpha Desc 4.0 2.5
Downside Deviation Desc 5.0 5.0
Jensen Desc 5.7 5.0
Sortino Desc 7.7 6.0
Upside Potential Desc 11.0 7.0
Calmar Desc 13.7 7.5
Sharpe Desc 10.3 8.0
Ulcer Performance Index Desc 13.0 8.0
GSD Desc 7.0 8.5
Normalized Trough Count Desc 7.0 9.0
CAGR/(UI^x) Desc 15.3 11.5
Treynor Desc 11.0 12.0
Upside Potential Ratio Desc 10.3 12.5
Treynor Asc 23.0 14.5
CAGR/(SF^x) Desc 18.0 15.5
Treynor/(GSD^x) Asc 26.7 16.5
Treynor/(Beta^x) Desc 15.7 17.0
CAGR/(GSD^x) Desc 17.3 18.5
Beta Asc 19.7 21.0
GSD Ratio Desc 28.3 21.5
Correlation Asc 18.7 22.0
Ulcer Performance Index Asc 29.7 24.0
Sleep Ratio Desc 17.3 25.0
Beta Desc 21.7 25.5
Sharpe/(GSD^x) Desc 23.3 26.0
Sortino Asc 29.0 26.0
GSD Ratio Asc 26.3 29.5
Calmar Asc 32.3 30.0
Treynor/(GSD^x) Desc 23.3 30.0
Alpha Asc 35.3 31.0
CAGR/(UI^x) Asc 36.0 32.5
CAGR/(UPI^x) Desc 31.3 32.5
Ulcer Index Desc 22.0 32.5
Sharpe/(GSD^x) Asc 38.0 33.0
CAGR/(SF^x) Asc 35.3 33.5
Sharpe Asc 34.3 34.0
Treynor/(Beta^x) Asc 38.0 34.5
CAGR/(GSD^x) Asc 39.0 35.5
Sleep Ratio Asc 33.3 36.5
CAGR/(UPI^x) Asc 31.7 37.0
Jensen Asc 37.3 37.0
Correlation Desc 36.7 39.0
Ulcer Index Asc 36.3 40.5
Upside Potential Ratio Asc 35.3 42.0
Normalized Trough Count Asc 39.7 43.0
Downside Deviation Asc 40.3 43.5
GSD Asc 41.3 46.5
Upside Potential Asc 41.3 47.0

So this tells us that GSD Ratio with a descending sort is the absolute best for the bearish periods. Ulcer Index comes in second, and the Treynor/GSD is fourth.
    Bearish Periods            All 3  VL-SIPRO
All Combined Sort Avg
GSD Ratio Desc 15.0