Confused with lots of metrics, Which Portfolio is best?
- Thread starter sepidpooy
- Start date
Might be looking at too many metrics. 
I would only be interested in the #s in the box.
I would rank them in the order you've got them listed.
Wouldn't be interested in Vanguard as the max. drawdown is greater than average return.
I've been invested in CTAs for approx. 15 years.
***Trading style is very important IMO. Option writers can have a good looking record for a number of years then suddenly crash.
I would only be interested in the #s in the box.
I would rank them in the order you've got them listed.
Wouldn't be interested in Vanguard as the max. drawdown is greater than average return.
I've been invested in CTAs for approx. 15 years.
***Trading style is very important IMO. Option writers can have a good looking record for a number of years then suddenly crash.
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A lot of these are statistical measures which means the more data the better. In order for them to be meaningful you need to have a large sample size so the number of trades and market conditions are important. Based on your post I don't know how many actual trades happened in the 4 year period. In my own testing I use data from the past 25 years giving me over 6000 trading days, several thousand trades and lots of possible market scenarios (long term bull market, severe market downturns, bear markets, etc.).
Also, the metrics you focus on depends on your temperament and your ability to deal with drawdowns. If you're very risk averse and start freaking out when you have a drawdown more than 10%, your focus should be on minimizing drawdown at the sake of returns. If you're able to endure a 30% drawdown and continue trading as normal following your rules then you can opt for a riskier strategy that can give you better returns with some additional volatility.
Personally I like to balance the two: I can handle a 20% drawdown and stay disciplined. Of the metrics you list that I look at:
1) Calmar ratio - combines maximum drawdown with overall return, a value > 1.0 is very good
2) Sortino ratio - provides a measure of downside volatility vs. return
3) Market correlation - overall I want limited correlation with the market (avoiding large drawdowns)
One of my favourite metrics is the Ulcer Index since it provides a very good measure of drawdown performance. The problem with standard deviation and measures like Sharpe and Sortino is that the order of the data doesn't matter, so you can have extended periods of serious drawdowns and there's no indication of this. The UI calculates the depth and duration of drawdowns. If your software is able to calculate the UI I highly recommend it.
Based on these metrics I would choose Portfolio 2.
Also, the metrics you focus on depends on your temperament and your ability to deal with drawdowns. If you're very risk averse and start freaking out when you have a drawdown more than 10%, your focus should be on minimizing drawdown at the sake of returns. If you're able to endure a 30% drawdown and continue trading as normal following your rules then you can opt for a riskier strategy that can give you better returns with some additional volatility.
Personally I like to balance the two: I can handle a 20% drawdown and stay disciplined. Of the metrics you list that I look at:
1) Calmar ratio - combines maximum drawdown with overall return, a value > 1.0 is very good
2) Sortino ratio - provides a measure of downside volatility vs. return
3) Market correlation - overall I want limited correlation with the market (avoiding large drawdowns)
One of my favourite metrics is the Ulcer Index since it provides a very good measure of drawdown performance. The problem with standard deviation and measures like Sharpe and Sortino is that the order of the data doesn't matter, so you can have extended periods of serious drawdowns and there's no indication of this. The UI calculates the depth and duration of drawdowns. If your software is able to calculate the UI I highly recommend it.
Based on these metrics I would choose Portfolio 2.
I make about one trade every day. There are more than 1000 trades in this back test study in the last four years.
I appreciate your detailed response. I really liked Ulcer Index and going to use that moving forward.
Is there a metric that accounts for the number of trades in the sample?
Use portfolio 2 when the market is overbought and use portfolio 1 after the market takes a beating.
Which ones are actionable?
None of them is tested by me in a real life for a long time. I have done just a few month of Profolio 1 so far. Does the back test results looks too good to be true ?