I know there is an index of the performance of currency fund managers but am not finding it at the moment. Deutsch Bank has something that might act as a benchmark also…
http://www.db.com/presse/en/content/press_releases_2007_3416.htm?month=3
Here’s another for currencies…
The AFX index is a currency management index, which aims at a high correlation with other currency management indexes such as Parker or CISDM (formerly MAR), with correlation over the past 15 years being, on average, 0.74 (a correlation study can be downloaded from here). The traditional benchmark for currency traders has been nil return, this is misleading since the actions and trading strategies of many active currency managers are similar, with most active managers basing their decisions on trend following trading systems. Taking this into account, it becomes apparent that a more suitable index, against which to benchmark an active currency manager, would be the average performance of an active, trend following, currency manager.
AFX is an index that replicates the trading actions of an active manager and provides a more realistic benchmark for active currency traders.
http://cwis.livjm.ac.uk/AFE/CIBEF/67762.htm
and one last one… here’s the CTA index I was thinking of but couldn’t find quickly enough…
CTA Equal Weighted Currency Index
The CISDM CTA Equal Weighted Currency Index reflects the average performance of currency Commodity Trading Advisors (CTAs) reporting to the CISDM Hedge Fund/CTA Database. Currency CTAs trade currency futures/options and forward contracts based on a wide variety of trading models. In order to be included in the currency universe, a currency CTA must have at least $500,000 under management and at least a 12-month track record. The index goes back historically to January 2001.
http://www.casam-hedge.com/IndexDetail.aspx?ID=7599&G=3
Another industry benchmark for Currencies is the Parker FX Index, but I can’t easily find up to date data on it…
I like your idea of basing the benchmark on a slice of C2 systems better. In addition, it would be helpful to know the correlation (or beta) between a system and each of the (major) currency pairs for stress testing.
I would propose the benchmark to be based on the number of subscribers and re-weighted periodically.
Jules, Science Trader… am I understanding you correctly?
You’d rather see a benchmark of C2 currency systems than an industry accepted benchmark? An index of amateur (for the most part) systems developers versus an index that either measures a basket of foreign currencies or the performance of professional currency trading CTAs?
and the benchmark should be positive in the long run? Wow… What kind of benchmark is that? If the S&P is negative for a month or two and a system is positive isn’t that outperforming the index? Why on earth would you need an index to be positive… the whole point of an index is to track the general performance of the market it concerns… If the general performance is negative the index should be negative. And then individual systems can still be compared to whether or not they outperformed the index.
And isn’t one of the main purposes of all the stats available on C2 to determine how a system is doing and how it’s doing against it’s C2 peers/rivals? Carving a benchmark out of that just doesn’t make sense to me either.
If you’re going to compare stock systems to the S&P… you need to compare Forex systems to a industry recognized index too…
On the other hand…
If I misinterpreted, please correct me…
Of course a legitimate index needs to be positive over the long term or there is little reason to be trading the market that the index tracks…
I like the CTA index. I didn’t read your msg before I wrote mine, and I wasn’t aware of the existence of a CTA index.
Such an index is especially useful if subscribers frequently doubt whether to subscribe to a C2 system or have a CTA manage their money.
For subscribers only looking at C2 systems, a C2 based benchmark is more helpful I think.
No problem Science Trader… I think that’s probably the comparison most people would like to make too… AutoTrade at C2 vs managed account… so I agree that the CTA index seems like a quite appropriate benchmark.
It’s also nice to know how vendors are doing against recognized professionals…
The one problem I see with the CTA index (which may not be a problem at all) is that the CTA’s performance really isn’t all that impressive
For subscribers only looking at C2 systems, a C2 based benchmark is more helpful I think</>
I missed that in your post. My one comment about that is that it seems almost redundant or unnecessary when I can directly compare performance’s of individual C2 vendors already.
But… it might be of interest to quite a few people to know how they compare against a basket of C2 systems or a performance mean of all systems, or something of that ilk…
One more comment about the S&P as a benchmark against Forex systems…
I don’t mind at all seeing how any system, including a “Forex” system is performing against the S&P… If I’m thinking about futures or forex systems and they are barely beating this basic index… I may decide to keep my money in an index fund, mutual fund, or etf versus taking on the added risk of leveraged instruments with the additional unknown factor of vendor reliability.
If the S&P averages 8% a year (pulled out of a hat)… Why would I risk money on a much riskier system that makes 10%… ? Of course, I have the feeling that most C2 subscribers are looking for 50% and greater returns… so it may be a moot point…
>The one problem I see with the CTA index (which may not be a problem at all) is that the CTA’s performance really isn’t all that impressive
So is the S&P 500 Index performance: 4.10% Annualized return since inception with around 35% DD. Atleast the CTA performance was better: 6.57% Annualized return since inception with less than 10% DD: I wonder whether Grandma would like that regardless of LTCM, Amaranth or BSC…
Brian,
Where do you get the 4.1% from? I thought it’s more like 7%. Isn’t the max drawdown more like 50%?
The S&P had a Sharpe ratio of ~1.5 over the past year. The number of C2 systems beating that is small…
>Of course, I have the feeling that most C2 subscribers are looking for 50% and greater returns…
Yes with less than 10% DD: they want to have their cake and eat it too. One may be able to achieve a 50% return with a 25% DD by hedging with options. Atleast the CTAs had options on leveraged instruments to hedge their portfolios (unlike C2), so they don’t have an excuse for their dismal performance…
Sorry, actually since January 2001…
Jules, Science Trader… am I understanding you correctly?
You’d rather see a benchmark of C2 currency systems than an industry accepted benchmark?
Not me! I just didnt respond because I fell asleep after dinner
I think your idea is great. I prefer it above all other suggestions, including those of myself.
For the record, I think that in theory my idea of an average C2 system is sound, and comparable to what you suggest. Your idea is better because the sample of tracked systems is better, namely larger and broader. And it is easier to do. Some other points:
the whole point of an index is to track the general performance of the market it concerns
Yes, but the question is what the market is: The traded assets or the competing systems? C2 is a market too.
And isn't one of the main purposes of all the stats available on C2 to determine how a system is doing and how it's doing against it's C2 peers/rivals?
Yes, but no statistic on C2 is doing that directly, except the C2 rating.
.you need to compare Forex systems to a industry recognized index too...
Yes.
I don't mind at all seeing how any system, including a "Forex" system is performing against the S&P...
I agree.
Remember that Ross originally asked to allow the choice between different benchmarks, and I think that is the best option. If there is only one benchmark then I think it should be what you suggested. But, like ST, I would also appreciate the possibility to compare it with a slice of comparable C2 systems (not only in the case of forex). That can be a valuable addition to the general C2 rating.
BTW, I find this discussion with its many different points of view very interesting! Thanks all of you.
I hate to throw a wet blanket on this discussion, but I think many of you are overlooking certain practical considerations:
1. Someone (Matthew) will have to program in the new comparisons. Using a simple index should be easy, but I suspect that such a project will be of low priority. Creating some complex index of C2 systems would probably be moved further to the back burner, if such an index were desired.
2. The chosen index (if not calculated from existing C2 data) will have to be readily available via common quote feeds. I doubt this is true for some of the CTA figures. S&P and Dollar Index are readily available.
All ideas presented are fine and good, but you must consider practical aspects, too. The more complex the idea, the less likely it is to be implemented.
Hans.
>The S&P had a Sharpe ratio of ~1.5 over the past year. The number of C2 systems beating that is small…
This is not the correct way to compare, ignoring returns…
I’m not sure if I understand what you mean. Can you give an example?
I did not have the illusion that any of these suggestions would be done shortly. Even if none of this is implemented I find this a valuable discussion. The first question is what is the most desirable. The next question is how it can be approximated as good as possible within practical constraints. We have also had discussions about many other things in the past. Some have been implemented, some not.
I dont know if there are quote feeds. I also dont know if the C2-based index is hard to compute. The basic idea in its present phase is: Compute for each day the mean return percentage of the forex systems, each weighted with the number of subscribers, and add this percentage to the index value of the previous day. How difficult it is to get the numbers at the right place depends on the C2 structure. I have no insight in that.
