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Two strategies can post the same yearly return and still be nothing alike.
Most people new to this rank strategies by one number, which is total return. It feels obvious. The one that made more money must be the better one.
That ranking hides how much pain you would have had to sit through, and pain is what makes people quit.
When I was getting started, I ranked test portfolios by return and ignored everything else. The winner dropped by about a third along the way, and I never would have held it.
Most beginners do this too. They compare results from tests on historical data using return alone, then wonder why live trading feels so much worse.
Professional allocators, the people who decide which funds get money, do the opposite. They look at the losses first and the returns second.
In today’s post, you’ll compute the Calmar ratio in Python and compare two futures portfolios.
Let’s go.
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