This sub-strategy looks at two components and chooses the most appropriate one: A Treasury and a GLD-USD sub-strategy. The addition of gold provides an option for prolonged inflationary environments that could place bonds in a multi-year bear market.

The equity/bond (or in our case HEDGE) pair is interesting because most of the time these two asset classes profit from an inverse correlation. If there is a real stock market correction, money typically flows towards treasuries and gold rewarding holders and providing crash protection.

'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:- Looking at the total return, or increase in value of 24.1% in the last 5 years of Hedge Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (124.9%)
- During the last 3 years, the total return, or performance is 17.2%, which is smaller, thus worse than the value of 60.5% from the benchmark.

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (17.6%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 4.4% of Hedge Strategy is smaller, thus worse.
- Compared with SPY (17.1%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 5.4% is lower, thus worse.

'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.'

Which means for our asset as example:- Looking at the 30 days standard deviation of 6.9% in the last 5 years of Hedge Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (18.7%)
- Compared with SPY (22.6%) in the period of the last 3 years, the volatility of 8.1% is smaller, thus better.

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Applying this definition to our asset in some examples:- The downside deviation over 5 years of Hedge Strategy is 4.9%, which is lower, thus better compared to the benchmark SPY (13.5%) in the same period.
- Looking at downside deviation in of 5.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (16.4%).

'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.'

Which means for our asset as example:- Compared with the benchmark SPY (0.81) in the period of the last 5 years, the risk / return profile (Sharpe) of 0.28 of Hedge Strategy is lower, thus worse.
- Compared with SPY (0.65) in the period of the last 3 years, the risk / return profile (Sharpe) of 0.36 is smaller, thus worse.

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (1.12) in the period of the last 5 years, the ratio of annual return and downside deviation of 0.39 of Hedge Strategy is smaller, thus worse.
- During the last 3 years, the downside risk / excess return profile is 0.5, which is smaller, thus worse than the value of 0.89 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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (5.58 ) in the period of the last 5 years, the Ulcer Ratio of 4.06 of Hedge Strategy is smaller, thus better.
- During the last 3 years, the Downside risk index is 5.14 , which is lower, thus better than the value of 6.82 from the benchmark.

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (-33.7 days) in the period of the last 5 years, the maximum DrawDown of -11.4 days of Hedge Strategy is higher, thus better.
- During the last 3 years, the maximum reduction from previous high is -11.4 days, which is larger, thus better than the value of -33.7 days from the benchmark.

'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) in days.'

Using this definition on our asset we see for example:- The maximum time in days below previous high water mark over 5 years of Hedge Strategy is 289 days, which is greater, thus worse compared to the benchmark SPY (139 days) in the same period.
- During the last 3 years, the maximum days below previous high is 289 days, which is larger, thus worse than the value of 128 days from the benchmark.

'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:- The average days under water over 5 years of Hedge Strategy is 58 days, which is larger, thus worse compared to the benchmark SPY (32 days) in the same period.
- During the last 3 years, the average days below previous high is 76 days, which is higher, thus worse than the value of 33 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 Hedge Strategy 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.