I am curious how many traders here track their daily/monthly sharpe ratios? What are people's thoughts on hedge funds, CTAs or traders with high sharpe ratios. Thanks.
Specifically, is a high sharpe ratio a good thing, is it necessarily indicative of a superior strategy?
I think it means something. One guy can be up 200% and have a very high ratio, while another guy can slowly bleed 2% a month and have a much better ratio. Which guy would you invest with?
Exactly right. Sharpe ratio and Standard Deviation by themselves don't give you enough information. Semi-deviation is a better measure used to weed out "over-performance bias." However, once a fund has a sufficiently large asset base on which to trade "over-performance" is usually no longer a problem. Dr. Zhivodka
Dr. Z, What do you consider the most important characteristic(s)to consider in reviewing a track record (including the sharpe ratio)?
A very important characteristic when considering an investment is its correlation with the rest of your portfolio. If it has a positive return and no correlation (or better yet, negative correlation) with the rest of your portfolio, that is a great find. A mediocre Sharpe ratio with a low correlation can be a better choice than a higher Sharpe ratio with a high correlation to the rest of your portfolio. Additional ways of saying this is you want a "large Treynor ratio" or you want a "large alpha".
I say, talk to the guy for a half hour, get in his head and see if his strategy makes sense. Then see if he has made money with it. That is all you need to know.
Talking to the guy , "getting into his head" and seeing if the strategy makes 'sense' may be a good first step... but there should be other objective measures. Furthermore, how do you compare 2-3 guys/gals who've you spoken to, whose strategies all make 'sense', if you have only subjective measures?
Not that hard really. I talk with guys every day. Guys doing really nutzo things. I can tell almost instantly if someone is talking from his ass or not. It is not too hard. There are a million ways to make money in the market.