First you need some accurate SR figures. I'm not sure exactly what you've done, but that doesn't look like a SR 4.0 curve - that's going to be very close to a straight line. And also extremely likely to be overfitted to hell. I'd say the good bits are about SR 2.0 at best, and overall about 1.7.
[Sharpe Ratios suck in many ways, but it's very easy to get a good intuition about them]
By eye I would say your annual Sharpe Ratios are roughly:
2010-2012 and end 2015 to now about 2.0 for ~N=88 periods
akward period about 0 for ~N=30 periods
2010 - now about 1.7, for ~N=118 periods
Let's assume:
- that returns are iid (and looking at your backtest they don't look too far away at least on a monthly basis) in which case we can use this as the standard deviation of the SR estimator: sqrt[(1+.5SR^2/N)] https://cran.r-project.org/web/packages/SharpeR/vignettes/SharpeRatio.pdf
- you have returns every single week (if you have blank weeks with no trades then the confidence intervals will be much wider)
- you have absolutely no forward looking overfitting. I'm very skeptical that you can get a SR 1.7 strategy without overfitting, but if you can that's wonderful.
- your returns will be perfectly stable into the future- basically impossible, but let's live with it
Say the returns are monthly (if iid won't matter if you have higher frequency) then your monthly SRs are:
[divide annual by sqrt(12)]
2010-2012 and end 2015 to now: about 0.60 for ~N=88 periods
akward period about 0 for ~N=30 periods
2010 - now about 0.5, for ~N=118 periods
Your standard deviation of estimators is:
sqrt[(1+.5SR^2/N)]
2010-2012 and end 2015 to now: 0.115
akward period: 0.183
2010 - now: 0.098
And the 95% confidence intervals for these SR are:
u - 1.96s, u+1.96s where u is average SR and s is standard deviation of estimator
2010-2012 and end 2015 to now: 0.37 to 0.83
akward period: -0.36 to 0.36
2010 - now: 0.31 to 0.69
Shit, who understoods monthly SR. Not I. Let's convert to annual (*sqrt12)
2010-2012 and end 2015 to now: 1.3 to 2.9
akward period: -1.2 to 1.2
2010 - now: 1.1 to 2.4
So what can one conclude? Well the SR in the bad period might be pretty bad (-1.2) or actually very good (+1.2). It's just not long enough to tell. And overall you might have a very good strategy (1.1) or an extremely good strategy (2.4). The good news - if you make all the assumptions above - is that at worse it's a good strategy.
And what if you do find something 'happening' in 2012-2015? What are you going to do - change your model? Well done you've just used future data (what I call 'implicit' fitting) and your Sharpe Ratio will be overstated - at best - and at worst you will have turned something that might work in the future into an overfitted POS.
GAT
[You were in luck: I can do this stuff very fast as this very day I was working on my slides for the course I run on systematic trading in January... so had the spreadsheet ready to go!]
