Take the tour ×  I'm trying to find an optimal way to allocate
capital among trading strategies.  "Quantitative Trading" by
Ernie Chan claims on page 97 that the optimal fraction of
capital to allocate to a given trading strategy can be
calculated by the following formula.  f = μ/σ2, where μ is the
mean and σ2 is the variance of the return of the trading
strategy.  This assumes that the trading strategies are
statistically independent and their returns have a normal
distribution.    • The formula looks deceptively simple. Does it
actually work?   • Do professionals use it at all?   • The
author calls this the Kelly formula. Is this correct? I thought
the Kelly formula was $\frac{p(b + 1) - 1}b$? share|improve this
question The formula "f" is only optimal with respect to a
specific level of risk-aversion assuming a mean-variance utility
function –  Quant Guy Oct 7 '11 at 3:23 Keep in mind also that
finding trading strategies with returns that are independent
(and stationary) with normally distributed returns i