Adjust a quality measure (Sortino Ratio) to account for Autocorrelation in Trade Returns

External question — Quantitative Finance Stack Exchange Author: babelproofreader Original post: https://quant.stackexchange.com/questions/85823 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Given a series of closed trade profits and loses, a quality measure that could be applied is Sortino Ratio multiplied by the square root of N (N being the number of trades). ( average trade return / standard deviation of negative trade returns, i.e. losing trades ) * sqrt( N ) However, according to an online AI chatbot, the N value should be adjusted to account for the trade returns not being i.i.d, i.e. autocorrelated. Is this actually true, and if so, what is the formula for making this adjustment? The chatbot suggests using lag-1 autocorrelation.