I think I understand most of the ratios used to score contest entries. Here is a diagram of their relationships. (If needed, please correct me and I will update it.) UPDATE: I made an error when I said Sortino was replacing Sharpe. The real change is that Sortino will replace Calmar.
(1) "Annualized Return" is how much your portfolio value would likely grow (or shrink) in a year.
(2) "Annualized Volatility" is based on how much your portfolio value deviates from a straight line.
(3) "Stability of Return" is very similar to Volatility
(4) "Sharpe" is based on both Return and Volatility.
(5) "Max Drawdown" measures the biggest percentage of portfolio value lost during the period in question. (Peak to Bottom) Max Drawdown is related to Volatility. Low Volatility = Low Max Drawdown.
(6) "Calmar Ratio" is based on "Return" and "Max Drawdown" (which is based on volatility). Calmar is being replaced by Sortino which is very similar to Sharpe, except that Sortino only includes downward volatility in the score. This means that upward volatility will not lower your Sortino score.
(7) "Beta to SPY" is unique in that it doesn't relate to any other ranking metric.
This makes 5 rankings based on Volatility (2,3,4,5,6) and only 3 rankings based on Return (1,4,6). Since each ranking is currently equally weighted, there is a strong reward for algorithms that have low volatility. If someone creates an algo with high return and moderate volatility, they will almost always lose to an algo with low return and low volatility.
Here is my primary question: Can I convert my high return algo into the second type simply by lowering the leverage? For example, if I used 1/10 the leverage, my returns would be lowered which impacts 3 rankings, but more importantly, my volatility would be lowered which improves 5 rankings. How far does this go? Should I use 1/100 of my leverage? Is this what some of the leaders are doing?