'Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Applying this definition to our asset in some examples:- The total return, or performance over 5 years of Caterpillar is 63%, which is higher, thus better compared to the benchmark SPY (59.2%) in the same period.
- Compared with SPY (33.1%) in the period of the last 3 years, the total return, or performance of 25.4% is lower, thus worse.

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (9.7%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 10.3% of Caterpillar is higher, thus better.
- During the last 3 years, the annual return (CAGR) is 7.9%, which is lower, thus worse than the value of 10% from the benchmark.

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Using this definition on our asset we see for example:- Looking at the 30 days standard deviation of 30.7% in the last 5 years of Caterpillar, we see it is relatively greater, thus worse in comparison to the benchmark SPY (18.7%)
- During the last 3 years, the volatility is 33.3%, which is larger, thus worse than the value of 21.5% from the benchmark.

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (13.6%) in the period of the last 5 years, the downside deviation of 21.8% of Caterpillar is larger, thus worse.
- During the last 3 years, the downside deviation is 24.2%, which is larger, thus worse than the value of 15.7% from the benchmark.

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (0.39) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.25 of Caterpillar is lower, thus worse.
- Compared with SPY (0.35) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.16 is lower, thus worse.

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (0.53) in the period of the last 5 years, the ratio of annual return and downside deviation of 0.36 of Caterpillar is lower, thus worse.
- Looking at excess return divided by the downside deviation in of 0.22 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.48).

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Applying this definition to our asset in some examples:- Looking at the Ulcer Ratio of 16 in the last 5 years of Caterpillar, we see it is relatively larger, thus worse in comparison to the benchmark SPY (5.79 )
- Looking at Ulcer Ratio in of 18 in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (6.83 ).

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Using this definition on our asset we see for example:- Looking at the maximum reduction from previous high of -43.4 days in the last 5 years of Caterpillar, we see it is relatively lower, thus worse in comparison to the benchmark SPY (-33.7 days)
- Compared with SPY (-33.7 days) in the period of the last 3 years, the maximum drop from peak to valley of -43.4 days is lower, thus worse.

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Max Drawdown Duration is the worst (the maximum/longest) amount of time an investment has seen between peaks (equity highs). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum days under water of 590 days of Caterpillar is greater, thus worse.
- Looking at maximum days below previous high in of 590 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (139 days).

'The Average Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (42 days) in the period of the last 5 years, the average time in days below previous high water mark of 185 days of Caterpillar is larger, thus worse.
- Looking at average days under water in of 251 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (38 days).

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Caterpillar are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.