Folks,
 
As far as I can tell, the comparison of competing trading rules seems to
be done on the basis of such metrics as Sharpe ratio, drawdowns, hit
ratios and the like.
 
I wonder if these are entirely fair comparisons.
 
For example, if one strategy results in active positions 90% of the
time, while the other is active only 50% of the time, the standard
deviation of the latter strategy might be lower than the former because
of the longer stretches of zeroes in the returns. Should a further
adjustment be made for the inactive periods? Would this be something as
simple as dividing by the square root of the number of inactive zeroes?
 
Are there any other ways of comparing the performance of strategies that
you can suggest? Any related literature?
 
Thanks,
 
Murali

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