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Gerry,
Te sortino ratio sounds like a great idea. I too find
my sharpe ratios on good systems Ive made are all so
far about .30 -.40, and rarely deviate from that.
Eric
--- gerryjoz <geraldj@xxxxxxxxxx> wrote:
> I am wondering if a couple of the ratios in the
> systems test report
> need another look at their usefulness, namely Sharpe
> and K-ratio. How
> many people find them useful and how many do not?
> Perhaps the two
> measures mentioned below would be more useful?
>
> In the course of backtesting, I sometimes look at
> the Sharpe and K-
> ratios. Up to now i haven't been tracking them
> closely, being more
> concerned with Payoff and a couple of others. My
> impression has been
> that the better the Payoff or Profit ratio in
> conjunction with
> tighter stops, for much the same NP%, the worse the
> Sharpe ratio!
> Further even tho' the backtesting seems ok for the
> watchlist i am
> selecting (top stocks), the K-ratio never gets off
> the ground, and
> the sharpe ratio is only slightly correlated with
> better payoff or
> profit ratios.
> Here are a couple of rows out of 30 different
> backtests.
> Unfortunately I didn't keep the stop and other data.
> name Run # NP % Exposure
> % CAR Max.
> Sys %
> DD CAR /MDD
>
> Profit
>
> Factor
>
> Payoff
>
> Ratio
>
>
> Sharpe K-Ratio on next line
> A 16 101.9 79.28 17.77 -8.35 2.13 6.46 2.75
> 0.38 0.08
> B 30 95.9 70.7 16.02 -10.08 1.59 3.29 4.31
> -0.15 0.06
>
>
> average 93.15 73.37 15.91 -11.72 1.55 9.81 3.52
> 0.2 0.07
>
> On the other hand, Expectancy, and the Sortino ratio
> do appear
> useful. Expectancy has been given some attention in
> this forum.
> Paraphrasing something I got off the web:
>
> The Sortino Ratio is similar to the Sharpe Ratio,
> except that instead
> of using standard deviation as the denominator, it
> uses Downside
> Deviation or "Disappointment", being the
> (Portfolio Return
> minus the
> Minimum Acceptable Return (which is the Risk Free
> Rate))/(Deviation
> below the MAR).
> At http://www.sortino.com/htm/Sortino%20Ratio.htm
> S. Satchel wrote->
> "I would like to make it clear that it was not my
> idea to call
> this
> the Sortino ratio. It was Brian Rom's idea at
> Investment
> Technologies. This came out of research I did in
> the early 80's.
> The first reference was in the Financial Executive
> Magazine, August
> 1980. The first calculation was in the Journal of
> Risk Management,
> September 1981. I think it was an improvement then
> in that it
> measured risk as deviations below the investor's
> MAR. The numerator
> measured return in excess of the MAR. Thus it is
> goal oriented in
> that it measures performance relative to the goal
> the investor is
> trying to achieve instead measuring performance
> relative to the
> market. In that respect I believe it is better than
> the Sharpe ratio
> or the information ratio which measure how well one
> is doing relative
> to the t-bill rate and market index respectively"
>
>
>
>
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