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Subject:  Re: Blending at a Whole New Level Date:  8/5/2008  9:18 PM
Author:  Zeelotes Number:  211763 of 263540

Stevn asked:
Can you confirm that the improved results of re-selecting screens at transition points were all achieved using the shorter lookbacks of 6 and 3 years respectively?

Would you expect that in this case using all history would actually harm the backtested result?

Yes, I definitely used the 6/3 combination.

Here is a backtest over the full period of time using Sharpe in the bullish and Sharpe/GSD in the bearish periods:

Look-back Value     6        6       20       20
Look-back Value 3 20 3 20
CAGR 45.88% 46.22% 43.56% 43.89%
GSD 19.84 20.29 19.06 19.53
Sharpe 1.92 1.9 1.89 1.87
Ulcer Index 5.47% 6.33% 5.34% 6.53%
Average 11.48% 11.62% 10.72% 10.86%
Signal 84% 84% 82% 82%
Stock 76% 76% 74% 74%
Signal 79% 71% 79% 71%
Stock 71% 71% 71% 71%
Yrs >= Index 90.00% 90.00% 95.00% 95.00%
Yrs >= 0 100.00% 100.00% 100.00% 100.00%
Drawdown -27.57% -27.57% -27.57% -27.82%
Bullish 59.23% 59.23% 54.71% 54.71%
Bearish 29.89% 30.64% 29.89% 30.64%

I see this clearly pointing to a better result for 6/3. I have a backtest I ran on all measures that consistently put these two lookbacks to the top and that is the primary basis of my selecting these two lookbacks.

In general for evaluating backtests, I have tended to stick with Sharpe, but I think once you introduce timing elements or have times when you are in cash, the Sharpe Ratio may no longer be best. Something like CAGR/UI or (CAGR - rfr)/UI is probably better. I'm not sure to what extent we would call this whole blending process "timing", but I would tend to agree with you that UI probably tells you more than GSD and CAGR and UI probably tell you more than Sharpe.

I am definitely of this mindset.

CAGR/UI produces a value that has a much greater variance that enables one to see much more easily the mound of toast. The variance in Sharpe is just way too close to be anything more than noise.

In bull times, GSD can in fact be our friend which would make it logical that Sharpe rather than Sharpe/GSD may be a better screen selection filter - i.e. the bull / bear indicator causes us to switch between less / more conservative screens.

GSD can indeed be our friend. The fact that many of the top bullish measures are GSD descending based proves that out.

I wonder for assessing the best strategy (I'm not talking about a screen selection filter here) would somthing like the Sortino Ratio be better than Sharpe as I believe it is not symmetrical in how looks at volatility.

May be the case. What is the advantage of this over just using CAGR/UI?

This has always been a bit of a worry for me. I believe Treynor/GSD is similar Sharpe/GSD in relation to 1999 and I often wondered if I would stick it if we have a 1999 repeat. The place to be then was momentum. I would think Sharpe with a shorter lookback would have found plenty of momentum to be in for 1999.

This is most definitely a very strong reason for me to say a method such as I'm proposing is important to an MI investor. You have to be realistic about your own investor psychology.

It looks like there are some considerable challenges here to do this in real time.

I'd agree and is why I'm proposing a project be done to resolve the issue. Frankly, though, I've done the research. Others who see the value in the idea need to carry the ball to make it workable on a daily basis.

I don't have backtest data up to today, but I