Post #1736 by lizgdal on the Mechanical Investing board

Investment Strategies / Mechanical Investing

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Say you've been running an MI portfolio in a separate account for a while. What's a good definition and metric of success?

Risk-adjusted return compared to a benchmark is the most important metric. But end-to-end performance only provides one data point. Smaller time periods provide more data, but will have more noise. I use monthly excess returns, and a chart of the 12-month average shows any changes in performance. Using independent monthly returns allows the use of standard statistical methods. For example, for the standard MI SIP screens, monthly excess return was:

 avg    sd     from       to     months
1.0%   3.2%  19970224  20100701    161
-0.3%  2.5%  20100802  20231206    161

Using 6-month rolling returns is probably similar, but I would be more interested in the chart than percent wins.

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