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> Another example: System A returns 0.001% greater than the risk-free
> interest rate with zero-to-few drawdowns, and almost-perfect
> consistency. System B returns 60% per year on your account with
> modest 10% drawdowns. System A will have the higher SR due to
> near-zero standard deviation, but I'd still prefer system B.
All these hypothetical system with near-zero SD, making the divisor
approach zero, are fun mental exercises showing how Sharpe sucks in
theory but, in the real world of real systems, it's pretty rare to see a
system with a Sharpe > 1. If you see one with Sharpe > 3, it's one you'd
better pay attention to. ;-)
--
Dennis
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