Strategy selection as function of correlation / sharpe ratio

[truetype]

I wouldn't get too precise around optimizing around Sharpe ratios, as a) past performance will change (i.e. Sharpes won't persist); and b) correlations between assets and strategies can change a lot, which will trash your careful optimization.

Exactly right. There's a huge literature on the shortcomings of Markowitz optimization in real life. Golts & Jones is one paper I saw mentioned recently (but haven't studied).

 

[ironchef]

Exactly right. There's a huge literature on the shortcomings of Markowitz optimization in real life. Golts & Jones is one paper I saw mentioned recently (but haven't studied).

The math in their paper is too complicated for me to understand.

As a non professional retail, the best I can draw from the paper is this: One can bland different assets with the same Sharpe ratio but different volatilities to get a better absolute return with acceptable risk by investing in some leverage combination of those assets?

The question is what is the optimum combination and optimum leverage and how can someone like me find it? Is there a free lunch for me here?

Perhaps you can provide me with additional insight?