When one is evaluating systems (or a manager), it’s advisable to measure both the return and the risk associated with it. Often the volatility of the return stream, which isn’t necessarily the same thing as its risk, is thought of as synonymous with risk and substituted for risk in the measurement. The Sharpe ratio is one metric often used for measuring return in relation to risk; the Sortino ratio is another.
There are at least four different ways of conceptualizing the Sharpe ratio; I will list them, along with my thoughts on each:
(1) Maximizing the Sharpe ratio maximizes compounded returns.
Only if the distribution of returns is symmetric. Are returns distributed symmetrically? Not in THIS universe. To paraphrase Rodney Dangerfield’s character in “Back To School,” speaking to his business professor, maybe we should base our funds in Fantasyland, home of exclusively Gaussian distributions!
The good folks who populariz...
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Additional Growth Stocks On The WatchlistFrom: billakanodoodahs.com
Post Date: 2007-03-23 18:10:38
Three stocks were added to the watchlist this week, all from the Growth screener. No other action has been taken other than to add them to the list. These have risen close enough (within 15% off 52-week) to their highs to be caught by this screener, which requires proximity to the highs, relative [...]...
more Predictive Model Output - Mar 23, 2007From: billakanodoodahs.com
Post Date: 2007-03-23 17:49:30
Last week, the models were all bullish, but I wasn’t. In (additional) punishment, I will be quiet and let the models do all the talking. I should trust them more than my own judgement.
The S&P 500 closed at 1436.11.
The five-day “potential” model score is 80 on a scale of 1 to 100. [...]...
more Here’s Your IncidentFrom: billakanodoodahs.com
Post Date: 2007-03-23 04:45:39
Here’s your “incident.”
“We” said, “it was a routine boarding operation of a merchant ship in Iraqi waters.” “We” also claim to be investigating smuggling when “we” were “accosted.” “We” only grudgingly and rarely admit to the boarded ship being Iranian; many press reports from “western” sources omit the boarded ship’s origin and many also [...]...
more Home Solutions of America (HSOA)From: billakanodoodahs.com
Post Date: 2007-03-22 16:02:45
A couple of years ago (gosh, has it been that long?) I ran into Rex Stores (RSC), a smallcap electronics retailer that owned most of the land its stores were on, as well as a bunch of synfuel credits and an ongoing IRS audit regarding those. I passed that story along to Geoff of [...]...
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