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Investing/Strategies / Mechanical Investing
|Subject: Re: Blending at a Whole New Level||Date: 8/2/2008 5:25 AM|
|Author: Zeelotes||Number: 211672 of 263252|
I've arrived a bit late to this thread. I've been on vacation the last two weeks with limited internet access and just look at the feast I've returned to. I'm still quite a bit behind in my reading but I just had to read all 46 posts in this thread.
Welcome back. Frankly, I've missed your participation in this research. I believe your contributions last November helped greatly.
1. Lets say one decided to go with this concept and use Sharpe to select the screens for the bull period and Sharpe/GSD for the bear period. When selecting screens for say the bull period, I assume you look at the Sharpe Ratio of each screen using all of it's backtest history and not just the "bull" part of the backtest history? Can you confirm that my understanding is correct.
Yes, I do not divide up the history. I wish that would be possible, but it is not. At least, not right now. Interesting idea though.
The bull signals have a lookback of six years of data. The bear signals have a lookback of three years of data. I found these to be more or less optimal. Using all the history, however, does not result in something significantly different than what I've posted. The lookback length, IOW, is not that important.
2. I may not have fully absorbed all 46 posts so please excuse me if the answer is clearly stated in this thread, but when you were ranking each measure for selecting screens for bull and bear periods, did you alway rank them by resulting CAGR or by resulting Sharpe?
I'm not sure what you mean here. The measure stated was the measure used for ranking the screens and determining which screens to select. So they would never use CAGR since that was not an option. Sharpe was used for when it was the measure selected. If you are referring to my various tables, most of the time I determined which measures were best by their Sharpe, not their CAGR.
Again, what would we do when this useless signal tells us it is a bear market? We would select our screens using Sharpe/GSD. Well the testing last November showed that this was better than Sharpe for selecting screens for all markets.
My conclusion is that this fits Jim's ideal of timing. Great if it works and harmless if it doesn't.
I'd agree with all your comments on this. But let me add a bit of data for your consideration. Here is a table of the blend's returns for each bull and bear signal in order to compare holding Sharpe/GSD for both, or Sharpe for both. I also include the Russell 2000 return for the sake of comparison. But first, let me share the summary tables of the full table.
The average return for Sharpe/GSD during the buy signals is 10.42% compared to 16.28% for Sharpe alone. During the bullish periods the Russell 2000 gained just over 6%. In contrast, when a bearish period comes the Sharpe/GSD has an average gain of 6.69% compared to the Sharpe gain of 4.95%. The index loses -1.11%.
Signal Sharpe/GSD Sharpe Rus2k
Based on this you'd almost think the best option is to just use Sharpe all the time, or even to just use Sharpe/GSD all the time. Here is a table showing the various options with the far right column showing a blend where Sharpe is used to sort in the bullish periods and Sharpe/GSD in the bearish periods.
Sharpe/GSD Sharpe Blend
Here is the count of the ranks for each period -- full period, bull period and bear period:
Sharpe/GSD Sharpe Rus2k
And finally, the table of all returns for each period.
Date Signal Sharpe/GSD Sharpe Rus2k Sharpe/GSD Sharpe Rus2k