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Hard · Combinatorics · Quant Trader interview question · simpsons-paradox, sharpe-ratio, algorithmic-trading, probability
You are evaluating two algorithmic trading strategies, A and B. After backtesting, you observe the following: In volatile market conditions, Strategy A has a higher Sharpe ratio than Strategy B. In quiet market conditions, Strategy A also has a higher Sharpe ratio than Strategy B. However, when you combine the results across both market conditions, Strategy B has a higher overall Sharpe ratio than Strategy A. Which of the following scenarios best explains how this is possible (i.e., demons