Is this Possible or Realistic?

Discussion in 'Automated Trading' started by CPTrader, Oct 13, 2010.

  1. I recently came acorss this job listing

    Look at the required qualifications:

    Profitable 2 yr track record with:

    Maximum drawdown of 4% or below

    Sharpe Ratio of at least 5

    I find it very hard to believe that such performance records exist. Even at small capital sizes, I think it is highly unlikely. Worse, I think it is fair to assume they are calculating drawdown using daily data not monthly data which makes it even harder to believe.

    Finally is there realy alpha in "tick data"?

    Maybe I am just uninformed...but this all seems quite strange to me.

    Please share your thoughts and experiences. Thank you.
  2. I think it's fairly normal; but, my calculations could be crap.

    Yearly trading returns: 10%

    Asset return Std. deviation: 1%

    Risk free rate: 3%

    Sharpe = (10%-3%)/1% = 7

    At least that's what I'm reading into it... that said a 10% return with a 4% DD and low Std. dev. is not that easy, very doable, but not simple.
  3. The most obvious answer to your question is that when you are doing the hiring, you can ask for pretty much anything (25 year track record with 0 drawdowns, Sharpes of 300, whatever etc.). What (or who) you end up hiring is a completely different matter.

    My experience (limited in the high-freq area) is that there are strategies that can run at a 5 Sharpe over short periods of time, but sustaining that over 2 years on meaningful asset base (especially the past two years) is highly suspect in my opinion.

    There is a good discussion on Sharpes over in nuclearphynance. The general gist is that a Sharpe of more than about 2.5 or so really doesn't give you any additional information about the viability of the strategy. An interesting point mentioned is that Sharpes for Medallion/Tudor are around the 2.0 level (if you believe the posters).
  4. One of my favorite metrics for a strategy's viability is Annualized ROR/Max DD. You will find that very very few funds have AROR/MDD > 1.5, AROR/MDD greater than 2.0 are extremely rare.

    This is a tough business!