Haven't said its important, I'm just posting where I stand now, with an eye on my target of 4+ for rest of the year.
By the way, my sharpe r is over 10 since the new year. It definitely won't last, considering it's usually a little over one, and even lower on >1 year times. Not the end-all factor, and it's supposed to be 'annualized'!
2 months? Lol. Hey, I have an idea, why don't I calculate my Sharp per tick? That gives me a 50% chance of the next move giving me an infinite Sharpe ratio!
The Sharpe for SPX index for the first 2 months of the year is 9. It is very abnormal. Historically the Sharpe for equity mkt as a whole is about 0.3-0.4, 4-8% annual risk premium over annual std dev of about 15-20%. I fully expect by the end of year, the SPX sharpe will come down below 1. My mean is about 0.15-0.20% a day over the last 3 years. My daily std dev is about 1%. The sharpe is in 2-3 range over 3 years. Currently Sharpe for me YTD is a little over 2. It does not mean much as the sample is too short. It is very difficult to estimate mean. Std dev does not need as many data points to pin down. My daily std dev YTD stays at exactly historical mean of 1%. I do not manage sharpe. It just turned out that way. I realized over time 1% std dev daily is something that I am comfortable with. Anything bigger it starts to get to my head. Below 1% it is just money. Larger than 1% you start to think "I just lost a car" or "I could have bought a small apt in FL" after a big DD. I have experienced a couple of times 3% losses in a single day. I have also experienced 10% DD 3-4 times. The freq of large daily losses and large dd is clearly above what a normal distribution says, which is consistent with fat tails of financial mkt. njrookie
After some useful comments here, I am changing my target for 2012. My new target is Sharpe ratio 3-4 or better, Max DD less then 5%. So far year to date, Sharpe is 4.81, Max DD is 1.1%. Does that sound more practical?
I would be VERY happy with a sharpe of 3, a max DD of 10% and a realized return of 50% by the end of the year. You can get a sharpe of 100, and a max dd of 0% by putting all your money in a money mkt account that pays a couple of basis point above fed fund rates, and end with a grand return of 1% gain by the end of year. It is meaningless. njrookie
a short term rate makes more sense. if you are targeting only 20% in order to keep a high sharpe and low dd, it does not help your long term account equity growth.