[R-SIG-Finance] making sense of 100's of funds

[paul sorenson]

John,

The ranking idea sounds quite attractive.  If I understand you right 
though it wouldn't necessarily give me "diversity" metrics whatever they 
might be.  Ie as well as risk/reward of individual funds I would somehow 
want to achieve a mix of funds that did *not* correlate well 
(performance aside).

So I am thinking along the lines of, when faced with 200+ funds:

	- Put them in groups of highly correlated returns.

	- Select from each group based on my preferred performance criteria. 
Maybe at this stage I would focus more on reward than risk.

	- Then put together some kind of portfolio from this much smaller set 
based on holistic metrics with a balance of risk and reward that I am 
comfortable with.

Then presumably repeat parts of the process at intervals yet to be 
determined.

cheers

BBands wrote:
> BBands wrote:
>>> The use of benchmarks may not be the optimal path in this application,
>>> relatively simple ranking might be more viable. As a compromise, you
>>> might try looking at ranked Sharpe ratios...
> 
> On 8/19/07, Brian G. Peterson <brian at braverock.com> wrote:
>> A stack ranking of risk/reward ratios is a good idea.  I would recommend
>> using either a Cornish Fisher modified Sharpe ratio (to take possible
>> non-normality of distributions into account) or Sortino's Upside
>> Potential Ratio.  Even Sharpe himself recommends the use of Information
>> Ratio preferentially to the original Sharpe ratio, but old habits die
>> hard...
> 
> Old habits do die hard... For those interested, Bob Fulks has done a
> lot of interesting work with the Sharpe ratio. A quick search on his
> name might be useful.
> 
>     jab
> --
> John Bollinger, CFA, CMT
> www.BollingerBands.com
> 
> If you advance far enough, you arrive at the beginning.
> 
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