Hi, I am optimising a portfolio over 20 years.
Sorting results by CAR/MDD gives some very high CAR years and other years that are negative - however, over 20 years giving a good CAR.
This is untradeable in real life, however, because it is hard to sit through poor return years to hit the good years.
Is there a metric to use that smooths out the year on year return and gives the best smoothed equity curve slope?
You could check out the Ulcer Performance Index, which many find to be a better reward/risk metric than CAR/MDD or even Sharpe Ratio. And of course you could define your own master performance metric, as authors like Van Tharp and Howard Bandy have done.
Does ulcer performance index help smooth the years that are still positive, but a low positive, eg: YOY:
is better than:
I am experimenting with ideas for this, and am going to put this out there.
I shall test it further.
Anyone else, please try it out and feel free to amend - and post any comments.
if( Status("action") == actionPortfolio )
bo = GetBacktesterObject();
eq = bo.EquityArray();
st = bo.GetPerformanceStats(0);
BI = BarIndex();
t = LinearReg(eq, BI);
yy = StdErr(eq, BI);
// Higher is better
bo.AddCustomMetric( "newMetric", LastValue(t) / LastValue(yy));
For what it is worth, standard error of equity is included in
built-in stats System test report window, so there is no need to calculate it the way you do.
@traderuk99 it seems like you might also be interested in something like the "K-Ratio" by Lars Kestner.
@lanas I don't have a direct answer for you other than larger is better. This may have been discussed in the old forum.
But if you do some research into the K-Ratio you will be able to better compare systems and increase your knowledge about this useful measure of system performance.
Lars Kestner first introduced this measure in an article in TASC in ~ 1996. He wanted to know how smooth the equity curve of a system was, and here is where he claimed "I have developed a new method of evaluatin…
I had forgotten about Kratio - thanks!
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