Is this track record good enough to attract new capital

Yes, I sort of agree. We can make a few basic assumptions and then it would seem that the average return is significantly higher than zero.

Here is my basic test - I know I am not following statistical rigor to the "t" but that isn't the point. We are just trying to get an indication if an "above average" (ie, positive) result suggests significance.

There are 34 months of returns - call that "n".

The average monthly return is 8.0% and the standard deviation of monthly returns is 14.3%.

We want to know how significant the average 8.0% return is, compared to zero. The standard deviation of the *average* with 34 observations going into the average will be about 14.3% / sqrt(34) = 2.4%. So our average of 8.0% return is (8.0% / 2.4%) = 3.33 standard deviations above zero.

3.33 SDs above the mean looks pretty significant to me.


I guess the one thing that might be good to understand the role of chance here is, there was a block of returns in late '09 that was very very good. Was there one particularly strong market trend that was contributing that via intersection with the methodology? I took that string of 4 months out, leaving a sample size of 30 months. New results are:

average return (for 30 months, ie 34 - 4) = 4.7%

SD for the 30 months: 10.0%

sample size = 30, so SD of the mean = 10.0% / sqrt(30) = 1.8%

So average return is 4.7 / 1.8 = 2.61 SDs above the mean. Still pretty good.

 

What are we testing for here? Is the null hypothesis that the average return is zero and the alternative that the average return is significantly higher than zero?

 

Something like that.

Null: the mean return is zero
Alternative: the mean is greater than zero

This is fairly standard.

 

Think were you went wrong.

 

I'm not sure where I went wrong. I'm guessing you have a different measurement of the uncertainty or somehow adjust the standard deviation, such that while I do 8% / 2.4%, you so 8% / 5% or something like that?

Enlighten us...

 

You should get in touch with Peter L Brandt (he has a blog - I'll PM you the link). Seems like a similar trading style to yours (Edwards & Magee chart patterns, heavy futures/FX focus).

 

Form an incubator fund if you want to attract serious capital.

 

I believe a small hedge fund has AUM of less than $100 million, which most institutional investors avoid. Hell if you can attract that much capital at 2% management fees, you wouldn't even be on ET asking people for advice...You'd be giving it!

Good luck!