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Well, the irony here is not that I would trust long
term capital, but that I would trust their Sharpe
Ratio, LTCM reportedly had a Sharpe ratio of 4.35
(after fees).
--- areehoi <rhoierman@xxxxxxxxxxxxx> wrote:
> Eric,
> If you trust the Hedge Fund mangers you need to read
> the book about
> downfall of Long Term Capital the biggest hedge fund
> in the past
> decade. It all but brought down the entire financial
> markets. See:
> www.erisk.com/Learning/CaseStudies/ref_case_ltcm.asp
>
> R.E. (Dick) Hoierman
> --- In amibroker@xxxxxxxxxxxxxxx, eric paradis
> <thechemistrybetweenus@xxxx> wrote:
> >
> > Either way, I'll trust the opinion of hedge fund
> > managers with 30+ years experience who I'll assume
> > their records speaks for itself.
> >
> >
> >
> > --- cwest <cwest@xxxx> wrote:
> >
> > > In the context of back testing a trading system,
> I'd
> > > agree that profitable
> > > outliers will impair its merit when the results
> are
> > > measured on a risk
> > > adjusted basis. In other words, an ounce of good
> > > luck if you will becomes a
> > > paradox. When measuring results on a
> risk-adjusted
> > > basis it's probably a
> > > valid approach to exclude outliers provided that
> > > additional risk wasn't
> > > incurred to obtain the profit. Analogous to
> winning
> > > something from a lottery
> > > when the loss of the cost of a ticket isn't
> > > relevant. I don't think that's
> > > real-world in terms of designing and developing
> a
> > > trading system.
> > >
> > > _____
> > >
> > > From: amibroker@xxxxxxxxxxxxxxx
> > > [mailto:amibroker@xxxxxxxxxxxxxxx] On Behalf
> > > Of Fred
> > > Sent: Wednesday, December 14, 2005 5:19 PM
> > > To: amibroker@xxxxxxxxxxxxxxx
> > > Subject: [amibroker] Re: What metrics do you use
> for
> > > comparing systems ?
> > >
> > >
> > > Price ?! risk or Equity Curve risk ?
> > >
> > > The problem with Sharpe is that by it punishes
> > > upside "anomolies", if
> > > you can call them that on the equity curve.
> I'll
> > > take
> > > uncharacteristic upside movement in the equity
> curve
> > > every day.
> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, "cwest"
> > > <cwest@xxxx> wrote:
> > > >
> > > > I don't know anything about "Mulvaney," but it
> > > seems that the
> > > essence of his
> > > > comments which you quoted is an effort to
> > > discredit the use of the
> > > standard
> > > > deviation to measure risk. Not including the
> > > inherent risk of
> > > outliers,
> > > > whether a trading system was designed to
> capture
> > > those trades or
> > > not,
> > > > introduces skewing. The Sortino ratio does
> just
> > > that--it assumes
> > > that only
> > > > downside risk is important.
> > > >
> > > > Given that a trading system is intended to
> > > short-sell (as well),
> > > then it's
> > > > necessary to consider all price risk. I'm open
> to
> > > any suggestions
> > > that might
> > > > be a better performance benchmark, but so far
> > > measuring returns on a
> > > > risk-adjusted basis is unequivocally the
> > > consensus.
> > > >
> > > > Colin West
> > > >
> > > > _____
> > > >
> > > > From: amibroker@xxxxxxxxxxxxxxx
> > > [mailto:amibroker@xxxxxxxxxxxxxxx]
> > > On Behalf
> > > > Of eric paradis
> > > > Sent: Wednesday, December 14, 2005 2:19 PM
> > > > To: amibroker@xxxxxxxxxxxxxxx
> > > > Subject: Re: [amibroker] Re: What metrics do
> you
> > > use for comparing
> > > systems ?
> > > >
> > > >
> > > > You will absolutely not have a high sharpe
> ratio
> > > if
> > > > you have a long-term trend following system in
> > > either
> > > > equities or futures.
> > > > Trend followers have made many statements as
> to
> > > why
> > > > low sharpe ratios exist in funds that average
> > > 20-100%
> > > > returns in any given year due to outlying
> trades.
> > > >
> > > > The low Sharpe Ratio is due to the outlying
> > > winners,
> > > > and their effect on the Sharpe Ratio
> calculation.
> > > This
> > > > quote, taken from trendfollowing.com,
> discusses
> > > the
> > > > negative side of using a Sharpe Ratio to
> calculate
> > > > risk versus return-
> > > >
> > > > ( Mulvaney also notes that conventional
> measures
> > > of
> > > > risk-adjusted returns (i.e. Sharpe ratio) miss
> the
> > > > boat:
> > > >
> > > > "Implicitly using the standard deviation
> assumes
> > > that
> > > > the returns are normally distributed. But in
> > > >
> > > > fact our returns stream is very positively
> skewed,
> > > and
> > > > highly asymmetrical. Our standard
> > > >
> > > > deviation is extremely high but this is
> because of
> > > the
> > > > positive outliers. The standard deviation
> > > >
> > > > involves squaring the deviations from the mean
> and
> > > the
> > > > outliers are what really push it up. So a
> > > >
> > > > very strong case can be made that CTAs'
> > > performance is
> > > > severely penalized by the Sharpe
> > > >
> > > > ratio." )
> > > >
> > > > -Eric
> > > >
> > > > --- sebastiandanconia <sebastiandanconia@xxxx>
> > > > wrote:
> > > >
> > > > > "...fwiw, very few mutual funds exceed 1.0
> MSR
> > > :).
> > > > > Very good hedge
> > > > > managers obtain 2.0+ MSR...
> > > > >
> > > > > Interesting! Thanks, Colin.
> > > > >
> > > > >
> > > > > S.
> > > > >
> > > > >
> > > > > --- In amibroker@xxxxxxxxxxxxxxx, "cwest"
> > > > > <cwest@xxxx> wrote:
> > > > > >
> > > > > > My favorite subject/issue--performance
> > > > > measurement. The most
> > > > > preferred
> > > > > > benchmark by which investment and/or
> trading
> > > > > results are measured
>
=== message truncated ===
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