[R-SIG-Finance] Evaluating equity curves

[Robert Sams]

Quite right, Ralph. More precisely: any series of cumulative returns
plotted against time on a 2d chart is, *by definition*, an equity curve.


Aleks, I'm not sure you're after. To me, the return series of a trading
strategy isn't 'evaluated' per se, it's evaluated with respect to some
specific questions or conjectures you have regarding it. Articulating
this is logically prior to choosing the appropriate mathematical
technique.

If you can be more specific, we might be able to point you in the right
direction.

Robert

> -----Original Message-----
> From: r-sig-finance-bounces at stat.math.ethz.ch 
> [mailto:r-sig-finance-bounces at stat.math.ethz.ch] On Behalf Of R. Vince
> Sent: 12 October 2009 02:06
> To: Brian G. Peterson; Aleks Clark
> Cc: r-sig-finance at stat.math.ethz.ch
> Subject: Re: [R-SIG-Finance] Evaluating equity curves
> 
> Brian,
> 
> Isn't any stream of cumulative returns, de facto, an equity 
> curve? Or am I misunderstanding this? Thanks, Ralph Vince
> 
> ----- Original Message -----
> From: "Brian G. Peterson" <brian at braverock.com>
> To: "Aleks Clark" <aleks.clark at gmail.com>
> Cc: <r-sig-finance at stat.math.ethz.ch>
> Sent: Sunday, October 11, 2009 8:46 PM
> Subject: Re: [R-SIG-Finance] Evaluating equity curves
> 
> 
> > Aleks Clark wrote:
> >> As part of a project I'm working on that uses genetic algorithms to
> >> optimize trading parameters, I find myself seeking a way 
> to evaluate
> >> the equity curve that results from a given set of trading rules. It
> >> seems to be an obvious area of research, so I was wondering what's
> >> available in R-land or just in the world of finance in 
> general. I've
> >> poked around with splines as a way to express how 'nice' an equity
> >> curve is (steady upward rise as opposed to a "jagged" line), but I
> >> feel that there are probably better ways to do things...
> >
> > Having worked both in quantitative trading and in more 
> traditional asset 
> > management roles, I've never quite understood the 
> artificial distinction 
> > between "equity curves" and any other kind of returns.  In 
> my experience, 
> > all the usual performance and risk analysis tools (amply 
> provided for in 
> > R) as well as attribution (e.g. Bacon, much of which is 
> implemented in 
> > fPortfolio) are equally applicable to trading strategies as 
> they are to 
> > more traditional investment.  Also see Pat Burns' paper on 
> evaluatinfg 
> > trading strategies for additional ideas.
> >
> > Regards,
> >
> >   - Brian
> >
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