Artemis Capital: Moneyball for Modern Portfolio Theory

Artemis Capital: Moneyball for Modern Portfolio Theory

Every year trillions of dollars in investment decisions are made based on a simple equation known as the Sharpe Ratio. In the investment industry, the Sharpe Ratio, first devised by then-32-year-old William Sharpe in his classic 1966 paper "Mutual Fund Performance," has become the dominant metric for portfolio construction.


In a groundbreaking research paper, Chris Cole, Founder & Chief Investment Officer at Artemis Capital Management uses the "Moneyball approach", that what matters in sports is whether a player helps the team win, to prove that what matters in investing is whether an asset improves the risk-adjusted returns of your total portfolio.


"Your goal shouldn't be to buy players. Your goal should be to buy wins. In order buy wins, you need to buy runs." - Peter Brand (aka. Paul DePodesta), Moneyball


In this study, Chris and the team at Artemis Capital Management have created a new measure for investment teams to use in their quantitative investment due diligence processes to replace the Sharpe Ratio:




CWARP is "wins over replacement" for the asset management industry. It is a one-stop number that assesses whether alternate investments improve or hurt the pre-existing portfolio, measuring return, risk, and maximum drawdown altogether.


In this webinar with Chris Cole, Founder & Chief Operating Officer at Artemis Capital we discussed:

  • The mechanics of CWARP and how was it established
  • How Allocators to Hedge Funds can apply this metric effectively to screen and monitor potential and existing hedge fund investments
  • The implications for investment teams who do not adopt their quantitative screening and investment monitoring processes to include CWARP