US Dollar/Australian Dollar Forex

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (67.8%) in the period of the last 5 years, the total return, or increase in value of 16.2% of USD/AUD Forex is smaller, thus worse.
- Compared with SPY (44.5%) in the period of the last 3 years, the total return of 2.3% is smaller, thus worse.

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Which means for our asset as example:- Compared with the benchmark SPY (10.9%) in the period of the last 5 years, the annual performance (CAGR) of 3.1% of USD/AUD Forex is lower, thus worse.
- During the last 3 years, the compounded annual growth rate (CAGR) is 0.8%, which is smaller, thus worse than the value of 13.1% from the benchmark.

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Which means for our asset as example:- Looking at the historical 30 days volatility of 10.7% in the last 5 years of USD/AUD Forex, we see it is relatively lower, thus better in comparison to the benchmark SPY (21.4%)
- Compared with SPY (18.8%) in the period of the last 3 years, the 30 days standard deviation of 11.2% is smaller, thus better.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (15.4%) in the period of the last 5 years, the downside volatility of 7.2% of USD/AUD Forex is lower, thus better.
- Looking at downside volatility in of 7.7% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (13.3%).

'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.'

Applying this definition to our asset in some examples:- The Sharpe Ratio over 5 years of USD/AUD Forex is 0.05, which is lower, thus worse compared to the benchmark SPY (0.39) in the same period.
- Compared with SPY (0.56) 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:- The excess return divided by the downside deviation over 5 years of USD/AUD Forex is 0.08, which is lower, thus worse compared to the benchmark SPY (0.55) in the same period.
- During the last 3 years, the downside risk / excess return profile is -0.23, which is lower, thus worse than the value of 0.79 from the benchmark.

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Applying this definition to our asset in some examples:- The Downside risk index over 5 years of USD/AUD Forex is 16 , which is greater, thus worse compared to the benchmark SPY (9.46 ) in the same period.
- During the last 3 years, the Ulcer Index is 8.89 , which is lower, thus better than the value of 10 from the benchmark.

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Applying this definition to our asset in some examples:- The maximum reduction from previous high over 5 years of USD/AUD Forex is -28 days, which is greater, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- During the last 3 years, the maximum reduction from previous high is -16.3 days, which is greater, thus better than the value of -24.5 days from the benchmark.

'The Maximum 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. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Which means for our asset as example:- Looking at the maximum days under water of 804 days in the last 5 years of USD/AUD Forex, we see it is relatively larger, thus worse in comparison to the benchmark SPY (352 days)
- Looking at maximum days below previous high in of 582 days in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to SPY (352 days).

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. 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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (78 days) in the period of the last 5 years, the average time in days below previous high water mark of 277 days of USD/AUD Forex is higher, thus worse.
- During the last 3 years, the average days under water is 244 days, which is larger, thus worse than the value of 102 days from the benchmark.

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 USD/AUD Forex 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.