making sense of 100's of funds
John, The ranking idea sounds quite attractive. If I understand you right though it wouldn't necessarily give me "diversity" metrics whatever they might be. Ie as well as risk/reward of individual funds I would somehow want to achieve a mix of funds that did *not* correlate well (performance aside). So I am thinking along the lines of, when faced with 200+ funds: - Put them in groups of highly correlated returns. - Select from each group based on my preferred performance criteria. Maybe at this stage I would focus more on reward than risk. - Then put together some kind of portfolio from this much smaller set based on holistic metrics with a balance of risk and reward that I am comfortable with. Then presumably repeat parts of the process at intervals yet to be determined. cheers
BBands wrote:
BBands wrote:
The use of benchmarks may not be the optimal path in this application, relatively simple ranking might be more viable. As a compromise, you might try looking at ranked Sharpe ratios...
On 8/19/07, Brian G. Peterson <brian at braverock.com> wrote:
A stack ranking of risk/reward ratios is a good idea. I would recommend using either a Cornish Fisher modified Sharpe ratio (to take possible non-normality of distributions into account) or Sortino's Upside Potential Ratio. Even Sharpe himself recommends the use of Information Ratio preferentially to the original Sharpe ratio, but old habits die hard...
Old habits do die hard... For those interested, Bob Fulks has done a
lot of interesting work with the Sharpe ratio. A quick search on his
name might be useful.
jab
--
John Bollinger, CFA, CMT
www.BollingerBands.com
If you advance far enough, you arrive at the beginning.
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