I want to build a formula to produce a score for a potential trade based on 4 variables, time, return, liquidity of security, and probability of failure. For a set of potential trades I first attempted ordering them by producing a score = (1/time) * return * liquidity * (1/probability). So higher scores are better, i.e., ideal trades are short in duration, high in return and in liquidity of security, and low in probability of failure. However, I want the formula to take into account higher return trades and allow flexibility to a point in the probability of failure and liquidity.. So for example for these 2 trades:
Days, Liquidity, Return, Probability
2, 100, 0.4%, 0.6%
5, 300, 4%, 7.4%
Ratios: (Days)=2.5, ,Liquidity=3, Return=10, Probability=12.3
I would want a formula to score the second trade higher, though I'd want to cap the probability based on the level of return as well as consider time, so I'd be willing to accept a 7% or 8% chance of failure for a 4% return in 5 days, but not in 40 days, and not for a .5% return in 5 days, etc.. Also, if the liquidity of the second trade was very little, say 10, then it should score trade 1 higher even though the return is higher and the probability is acceptable.
How could I go about producing a formula to model this relationship? I tried OLS, but the resulting error was high, so the formula was not usable. Any advice?