[R-SIG-Finance] Evaluating equity curves

[Patrick Burns]

A traditional measure is the information
ratio.



Patrick Burns
patrick at burns-stat.com
+44 (0)20 8525 0696
http://www.burns-stat.com
(home of "The R Inferno" and "A Guide for the Unwilling S User")

Aleks Clark wrote:
> Well, the reasoning went like this...since I can instantly look at a
> equity curve and say 'hey that's a nice steady upward slope' as
> opposed to "wow that's a jaggy one with lots of drawdowns", I thought
> to apply some sort of maths to turn this gestalt into a number that
> could be taken along with the final balance as a measure of fitness,
> thus the applying of splines. Now that you mention it however, there
> are probably better ways of evaluating these strategies that aren't
> 'graphical' in nature.
> 
> On Mon, Oct 12, 2009 at 6:45 AM, Robert Sams <robert at sanctumfi.com> wrote:
>> 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
>>>>
>>>> _______________________________________________
>>>> R-SIG-Finance at stat.math.ethz.ch mailing list
>>>> https://stat.ethz.ch/mailman/listinfo/r-sig-finance
>>>> -- Subscriber-posting only.
>>>> -- If you want to post, subscribe first.
>>> _______________________________________________
>>> R-SIG-Finance at stat.math.ethz.ch mailing list
>>> https://stat.ethz.ch/mailman/listinfo/r-sig-finance
>>> -- Subscriber-posting only.
>>> -- If you want to post, subscribe first.
>>>
> 
> 
>