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 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.'

Which means for our asset as example:
  • The total return, or performance over 5 years of Top 3 Strategies is 140%, which is larger, thus better compared to the benchmark SPY (72.2%) in the same period.
  • Compared with SPY (48.3%) in the period of the last 3 years, the total return of 67.4% is larger, thus better.

CAGR:

'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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (11.5%) in the period of the last 5 years, the annual performance (CAGR) of 19.2% of Top 3 Strategies is greater, thus better.
  • Looking at annual return (CAGR) in of 18.8% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (14.1%).

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (13.2%) in the period of the last 5 years, the 30 days standard deviation of 10.1% of Top 3 Strategies is lower, thus better.
  • Looking at 30 days standard deviation in of 9.5% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (12.4%).

DownVol:

'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:
  • Looking at the downside deviation of 11.3% in the last 5 years of Top 3 Strategies, we see it is relatively smaller, thus better in comparison to the benchmark SPY (14.5%)
  • Looking at downside risk in of 10.9% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (14.1%).

Sharpe:

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (0.68) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 1.66 of Top 3 Strategies is greater, thus better.
  • Looking at risk / return profile (Sharpe) in of 1.71 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.93).

Sortino:

'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:
  • Looking at the excess return divided by the downside deviation of 1.48 in the last 5 years of Top 3 Strategies, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.62)
  • Looking at excess return divided by the downside deviation in of 1.49 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.82).

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.'

Using this definition on our asset we see for example:
  • The Ulcer Ratio over 5 years of Top 3 Strategies is 2.89 , which is lower, thus worse compared to the benchmark SPY (3.95 ) in the same period.
  • Looking at Downside risk index in of 2.35 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (4 ).

MaxDD:

'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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (-19.3 days) in the period of the last 5 years, the maximum reduction from previous high of -10.7 days of Top 3 Strategies is larger, thus better.
  • Looking at maximum drop from peak to valley in of -8.3 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-19.3 days).

MaxDuration:

'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:
  • Looking at the maximum days below previous high of 152 days in the last 5 years of Top 3 Strategies, we see it is relatively smaller, thus better in comparison to the benchmark SPY (187 days)
  • Looking at maximum days below previous high in of 152 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (139 days).

AveDuration:

'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 (41 days) in the period of the last 5 years, the average days below previous high of 33 days of Top 3 Strategies is lower, thus better.
  • During the last 3 years, the average time in days below previous high water mark is 30 days, which is lower, thus better than the value of 36 days from the benchmark.

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.