I'm hoping to get some discussion going on performance measures, I currently run a wide portfolio of strategies, but they can be pretty much grouped into 2 general styles.
1. Momentum (lose, lose, lose, big win).
2. Mean Reverting (win, win, win, big loss).
I am currently using t-score (basically Sharpe Ratio) to rate each strategy, the problem which is is becoming apparent is that the Sharpe Ratio penalizes both upside & downside profit volatility. In the case of 1) this is bad as the big wins tend to degrade the Sharpe Ratio. Conversely, if I change to say the Sortino Ratio I then get long periods of draw-down due to the characteristics of 1). In my mind I am almost at the conclusion that these two styles cannot be reconciled in the same account and that the actually need to be split out and traded in seperate accounts. Has anybody else tackled this type of problem?
1. Momentum (lose, lose, lose, big win).
2. Mean Reverting (win, win, win, big loss).
I am currently using t-score (basically Sharpe Ratio) to rate each strategy, the problem which is is becoming apparent is that the Sharpe Ratio penalizes both upside & downside profit volatility. In the case of 1) this is bad as the big wins tend to degrade the Sharpe Ratio. Conversely, if I change to say the Sortino Ratio I then get long periods of draw-down due to the characteristics of 1). In my mind I am almost at the conclusion that these two styles cannot be reconciled in the same account and that the actually need to be split out and traded in seperate accounts. Has anybody else tackled this type of problem?
The breaking of a wave cannot explain the whole sea.