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Dennis
You are quite correct.
Many years ago I was introduced to the ratio by someone who defined it
incorrectly and criticised it as I have just done. I have assumed all
these years that the divisor was the sd of price rather than return. I
then promptly closed my mind to it.
Another fondly held prejudice bites the dust.
John R Pretorius
-----Original Message-----
From: DH [mailto:catapult@xxxxxxxxxxxxxxxxxx]
Sent: 29 December 2007 09:54 PM
To: Omega List
Subject: Re: "The Sharpe Engine" My 2008 project
Following up on my last post, here's a pseudo-Sharpe-type calc that
shows downside volatility is penalized more than upside volatility.
There are two series of identical trades making either 1 or 2 points
except the first series has a 10 point winner and the second has a 10
point loser. The first series has a pseudo-Sharpe score of nearly 3x the
second one.
1 1 trade profit or loss
2 2
1 1
2 2
1 1
2 2
1 1
2 2
1 1
2 2
10 -10
2 2
1 1
2 2
1 1
2 2
1 1
2 2
1 1
2 2
39 19 net profit
1.96 2.63 std dev
19.90 7.24 pseudo-sharpe ratio
--
Dennis
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