Description of Top 3 Strategies

This strategy selects the top three performers from our core strategies, based on the most recent 3 month performance, and allocates one third to each of them.

Note that very often the strategy will invest in the more aggressive of our strategies, which might not be suitable for all investors. You can create your version of this strategy with our Portfolio Builder. Simply select the top 2, 3, or 4 strategies and assign equal weights to each or adjust your allocations for your risk level. You will need to manually review and update the top performers periodically.

Methodology & Assets

All of our current strategies are included in the algorithm.

Statistics of Top 3 Strategies (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (63%) in the period of the last 5 years, the total return of 132.3% of Top 3 Strategies is higher, thus better.
  • Looking at total return, or performance in of 65.3% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (39.8%).

CAGR:

'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.'

Applying this definition to our asset in some examples:
  • The compounded annual growth rate (CAGR) over 5 years of Top 3 Strategies is 18.4%, which is larger, thus better compared to the benchmark SPY (10.3%) in the same period.
  • Looking at compounded annual growth rate (CAGR) in of 18.2% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (11.8%).

Volatility:

'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 30 days standard deviation of 10.1% in the last 5 years of Top 3 Strategies, we see it is relatively smaller, thus better in comparison to the benchmark SPY (13.6%)
  • During the last 3 years, the historical 30 days volatility is 9.5%, which is smaller, thus better than the value of 12.7% from the benchmark.

DownVol:

'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 volatility over 5 years of Top 3 Strategies is 11.4%, which is smaller, thus better compared to the benchmark SPY (14.9%) in the same period.
  • Looking at downside volatility in of 10.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (14.4%).

Sharpe:

'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:
  • The Sharpe Ratio over 5 years of Top 3 Strategies is 1.57, which is higher, thus better compared to the benchmark SPY (0.57) in the same period.
  • Looking at Sharpe Ratio in of 1.66 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.73).

Sortino:

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

Which means for our asset as example:
  • Compared with the benchmark SPY (0.52) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.4 of Top 3 Strategies is greater, thus better.
  • Looking at downside risk / excess return profile in of 1.46 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.65).

Ulcer:

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Which means for our asset as example:
  • Compared with the benchmark SPY (4.01 ) in the period of the last 5 years, the Downside risk index of 2.93 of Top 3 Strategies is lower, thus better.
  • Looking at Ulcer Ratio in of 2.51 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (4.08 ).

MaxDD:

'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.'

Which means for our asset as example:
  • The maximum drop from peak to valley over 5 years of Top 3 Strategies is -10.7 days, which is larger, thus better compared to the benchmark SPY (-19.3 days) in the same period.
  • During the last 3 years, the maximum DrawDown is -8.3 days, which is higher, thus better than the value of -19.3 days from the benchmark.

MaxDuration:

'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.'

Using this definition on our asset we see for example:
  • The maximum days under water over 5 years of Top 3 Strategies is 188 days, which is greater, thus worse compared to the benchmark SPY (187 days) in the same period.
  • Compared with SPY (139 days) in the period of the last 3 years, the maximum days under water of 188 days is greater, thus worse.

AveDuration:

'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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (41 days) in the period of the last 5 years, the average days under water of 39 days of Top 3 Strategies is lower, thus better.
  • Looking at average days under water in of 42 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (36 days).

Performance of Top 3 Strategies (YTD)

Historical returns have been extended using synthetic data.

Allocations of Top 3 Strategies
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Allocations

Returns of Top 3 Strategies (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Top 3 Strategies 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.