[R-SIG-Finance] making sense of 100's of funds
sf at metrak.com
Mon Aug 20 02:22:22 CEST 2007
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
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
Then presumably repeat parts of the process at intervals yet to be
> 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
> 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.
> John Bollinger, CFA, CMT
> If you advance far enough, you arrive at the beginning.
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