Is not the denominator of the Sharpe ratio that the standard deviation of returns? I am not certain if I follow - substituting the standard deviation of returns in the denominator with the variance of returns transforms the formulation from Sharpe to Thorpe's constant optimal f calculation of the Kelly criteria. But I really don't think that's exactly what you intended. I apologize for being a bit thick.Originally Posted by ;
Yes, and it is Only a guess. If it really is a random walk then of course the returns are random rather than correlated. But if there's a trend (negative bias) in the random walk maybe this would show up on a statistical level (acf) on either the return or trade collection. Perhaps I want to do some simulations in R.. .Originally Posted by ;
This implies that there's a greater likelihood after the statistical criteria to discard is met, that performance will continue to deteriorate or not be positive. This seems. Or maybe it's just wiser to decrease the unknowns by discarding a system whose operation does not match its historical performance supply? Can a second theory test be used to turn a system back on after it has been deactivated? Can this off/on switch permit for lower thresholds than 99.5% assurance and thus quicker exits from downward equity curves and quicker re-entries to up sloping equity curves?Originally Posted by ;
I have some systems that need to be more re-optimized about every 6 months or performance deteriorates. It is also a fact that all systems have periods where they function well and badly. If performance degrades below a certain threshold such that the distributions are extremely different then it makes sense to discard the machine. However from a practical perspective, when you are at there you've typically already suffered a rather sizable drawdown. But I am not certain when I have any insight as to the way to overcome this problem. It's kind of like taking a halt loss. Your future reduction is limited but you've locked in the current reduction in the worst point up into the current moment.