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Quantopian Lecture Series: You Don't Know How Wrong You Are

Any estimate comes with a degree of uncertainty, but often that uncertainty is ignored. This is incredibly dangerous in finance, as a wrong estimate can be the difference between steady gains and massive losses. This lecture will cover some problems with how estimates are often taken and discuss some ways to quantify the uncertainty.

The lecture will be presented at this meetup. We will be releasing a video lecture as well, watch this thread for a link.

Also in this lecture:

This is part of Quantopian’s Summer Lecture Series. We are currently developing a quant finance curriculum and will be releasing clone-able notebooks and algorithms to teach key concepts. Stay tuned for more. We are also working on a permanent home for all of our notebooks.

Credit for the notebooks goes to Evgenia 'Jenny' Nitishinskaya, and credit for the algorithms goes to David Edwards.

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Disclaimer

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

5 responses

This is a critically important topic. For an alternative framework to quantify uncertainty using Bayesian statistics, here are a couple of blog posts with talks I gave on this topic:

Disclaimer

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

@Delany how does sharpe ratio is in negative territory yet stocks still goes up can.. sharpe ratio... be use.. as a predictor when will the stock is already overbought or oversold...??

Hey John,

The Sharpe ratio is only a measure of historical performance. A stock can have a very high Sharpe ratio up to a given time, and then proceed to do poorly and develop a very poor Sharpe ratio. In general investors use a Sharpe ratio in the hopes that the Sharpe ratio measured today will hold tomorrow, and that it can be used effectively as a predictor. The point made in this notebook is that taking the Sharpe ratio at any given time may not be a good indicator if there is a large amount of variance (as shown in the above graph). Generally the less variance a Sharpe ratio indicator experiences over time the more useful it is for trading. I will go over these concepts in this webinar http://bit.ly/HowWrongYouAreWebinar, please feel free to sign up and ask me questions about the material in real time, or continue asking questions on this thread; I'm happy to answer both.

Join us for "You Don't Know How Wrong You Are" live webinar on July 30th at 12pm EDT where Delaney will cover some problems with how estimates are often taken and discuss ways to quantify the uncertainty.

To join us, RSVP here.

After the event, we will share the recording with the community. We hope you can join us!

Disclaimer

The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.

The recordings from this webinar are ready! We broke the lecture down into three parts:

Join us this Thursday at 12pm EDT for "How Wrong You Are: Part 2" and find out more about statistical evaluations and the warning signs. RSVP for the live webinar here.