Statistics

Standard Error

The standard deviation of an estimator, quantifying how much an estimate would vary across samples.

For a sample mean, sigma / sqrt(n).

The consequence that matters: halving your uncertainty needs four times the data. This is why validating a strategy takes years rather than months.

Do not confuse it with standard deviation. Standard deviation describes the spread of the data; standard error describes the precision of a statistic computed from it. Standard error shrinks with more data; standard deviation does not.

For a Sharpe ratio, the standard error is roughly 1/sqrt(years) - so distinguishing a Sharpe of 1 from zero takes about four years.

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