I have a set of Experts i’m running on my live account and i wolud like to know if some one knows a good way on how to set the risk parameters to obtain the very best division between the systems?
And then i mean the best regading to get the lowest Standard Diviation, the highest Sharpe Ratio and of course the highest profit to the lowest drawdown.
I have heard of a system called CAPM wich shall be a good one but it’s quite hard to understand an calculate. If uising 8 system as i do i need to calculate with a 8th grade ekvation and that’s quite hard to make.
So if someone knows a good way to calculate, some nice article, have an excel sheet to share or anything to make a good division please post it.
Regards / JoLi
CAPM won’t help you much here. You’re getting more into the realm of portfolio optimization, which can indeed get complicated mathematically. It involves things like covariance.
Yes it’s true that it has some complicated mathematics. But that doesn’t mind me if i only could get some information on how to make it.
And i am far from your tought’s that CAPM won’t help to mix a good multi-fond/portfolio. If it was so bad why should the big players allways use it? It’s, as you might know, the most popular way in the bransch and is considred a “standard way” to get a good mix in a portfolio.
but by all means… i would really like to hear why you don’t think so and how you make a good profitable mix in your trading?
Regards / JoLi
CAPM is based on the idea that a security’s risk level - as measured by beta - will determine its expected return. Beta is a measure of how a stock trades relative to the overall market. It has been used by equity market players, but is not a feature in forex because there is no overall market in forex against which to compare an exchange rate’s performance, which is the definition of beta. And by the way, CAPM has come under extreme pressure in academia because they have found that linear methods (like CAPM) are not particularly effective. There’s been a move to non-linear approaches. At least this is what I’m hearing from a finance professor friend of mine.
The best way to set risk in a portfolio is to judge the potential risk of other trades in that portfolio. Always take the worst case scenario.