You'll probably hear these questions a lot if you solicit money from institutions, and so it would be a good idea to have an answer ready.
One answer that seems to sell pretty well is: "My performance is good, AND my correlation to other traders is very small (or better yet, negative). Therefore adding me to your stable of CTA investments will diversify your holdings and smooth your portfolio-wide equity curve."
However this requires you to
- calculate the correlation between (your suite of systems) and (other traders)
- optimize your suite for good performance and low correlation
You could do worse than measure the correlation between the monthly returns of your system suite, and the monthly returns of an industry benchmark index. To help you accomplish this, I have attached a modified returns series for one of the industry standard benchmark indices: the Barclay Systematic Traders Index. (google it).
It's been modified to make life a bit easier for you: Management Fees and Profit Incentive Fees have been added back. This is handy because it's easier to simulate your system without them; so if you're doing a huge optimization with thousands and thousands of tests, you skip the work of calculating fees and incentives, thousands and thousands of times.
I added back the standard 2-and-20 fee structure. 2% annual management fee, plus 20% net-new-profit incentive fee. So you can compare your simulations (with no mgmt fees and no profit incentive fees) against a no-fees version of the index. Apples to apples. It's in the file "index_before_fees.csv" below.
For those contemplating writing their own program to add back fees and incentives, I've also attached a little test case that may aid in debugging. Don't forget about the High Water Mark (the "new" part of "net-new-profit" incentive fees). You'll find it's easy to calculate after-fee returns starting from before-fee returns, and more difficult to calculate before-fee returns starting from after-fee returns. But don't despair, it can be done, in only 85 lines of code, so it can't be that complicated. Once you've got this program, you can run it and get before-fees returns from Winton Capital, or Chesapeake, or Eckhardt, or any other before-fees return series you like. Then you can easily calculate the correlation between (your trading suite) and (Winton) ; and, if you wish, you can optimize your suite to have low correlation to Winton. How cool is that?