Ralph Vince - Portfolio Mathematics

ch01 JWBK035-Vince February 22, 2007 21 : 43 Char Count= 0

The Random Process and Gambling Theory 35

FIGURE 1.7 Individual outcomes of 21 bets/trades

which (if you want to check your work)is.5916 to four decimal places, or

less than a 50% confidence limit that like begets unlike (since the Z score

was positive).

The linear correlation coefficient of. 011322 inthis caseis hardlyin-

dicative of anything, butitis pretty muchin the range you can expect

for most tradingsystems.Ahigh correlation coefficientin futures trading

systems would be one that wasgreater than.25 to.30 on the positive side,

or less than−.25 to−.30 on the negative side.High positive correlation

generally suggests that bigwins are seldom followed by biglosses and

FIGURE 1.8 Individual outcomes of 21 bets/trades, skewed by 1 bet/trade