One thing to note is that volatility / standard deviation can be measured over many different time horizons and assumptions.
Is it annualized standard deviation that matters? Semi-annualized? Do you take daily measurements and scale up? Weekly? Annual only? How many time periods do you need to really know an accurate number?
One thing to note is that volatility / standard deviation can be measured over many different time horizons and assumptions.
Is it annualized standard deviation that matters? Semi-annualized? Do you take daily measurements and scale up? Weekly? Annual only? How many time periods do you need to really know an accurate number?
Here is a paper from Andrew Lo on the statistics relating to this. https://www.researchgate.net/publication/228139699_The_Statistics_of_Sharpe_Ratios. "I find that the annual Sharpe ratio for a hedge fund can be overstated by as much as 65 percent because of the presence of serial correlation in monthly returns"
Another thing you need to be careful of, is all of this implies frequent rebalancing!
Let's say I... (read 446 more words →)