Description

The Short Term Bond Strategy is essentially a place to park cash that earns interest. When combined with other higher risk strategies it creates a lower risk portfolio and generally improves the portfolio's Sharpe ratio. If your broker pays interest on cash balances that is comparable to the current yield of this strategy, you can choose to keep this allocation in cash instead.

Methodology & Assets

This strategy switches between very low risk ETFs that hold short term corporate or treasury bonds including GSY, MINT and NEAR.

Statistics (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:
  • The total return, or increase in value over 5 years of Short Term Bond Strategy is 20.3%, which is higher, thus better compared to the benchmark SHY (5.1%) in the same period.
  • Compared with SHY (-0.2%) in the period of the last 3 years, the total return, or increase in value of 12.8% is larger, thus better.

CAGR:

'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.'

Applying this definition to our asset in some examples:
  • Looking at the annual return (CAGR) of 3.8% in the last 5 years of Short Term Bond Strategy, we see it is relatively greater, thus better in comparison to the benchmark SHY (1%)
  • During the last 3 years, the annual return (CAGR) is 4.1%, which is greater, thus better than the value of -0.1% from the benchmark.

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.'

Using this definition on our asset we see for example:
  • The historical 30 days volatility over 5 years of Short Term Bond Strategy is 2%, which is higher, thus worse compared to the benchmark SHY (1.9%) in the same period.
  • Looking at 30 days standard deviation in of 1.4% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SHY (2.2%).

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:
  • The downside volatility over 5 years of Short Term Bond Strategy is 1.6%, which is larger, thus worse compared to the benchmark SHY (1.2%) in the same period.
  • During the last 3 years, the downside risk is 0.9%, which is lower, thus better than the value of 1.5% from the benchmark.

Sharpe:

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Which means for our asset as example:
  • The Sharpe Ratio over 5 years of Short Term Bond Strategy is 0.63, which is larger, thus better compared to the benchmark SHY (-0.8) in the same period.
  • Looking at ratio of return and volatility (Sharpe) in of 1.13 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SHY (-1.17).

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.'

Which means for our asset as example:
  • Compared with the benchmark SHY (-1.24) in the period of the last 5 years, the downside risk / excess return profile of 0.79 of Short Term Bond Strategy is higher, thus better.
  • Compared with SHY (-1.77) in the period of the last 3 years, the excess return divided by the downside deviation of 1.78 is greater, thus better.

Ulcer:

'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.'

Which means for our asset as example:
  • The Ulcer Index over 5 years of Short Term Bond Strategy is 0.52 , which is lower, thus better compared to the benchmark SHY (2.27 ) in the same period.
  • Looking at Downside risk index in of 0.46 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SHY (2.93 ).

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SHY (-5.7 days) in the period of the last 5 years, the maximum drop from peak to valley of -5.2 days of Short Term Bond Strategy is greater, thus better.
  • Looking at maximum drop from peak to valley in of -2 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SHY (-5.7 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). 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 SHY (666 days) in the period of the last 5 years, the maximum days below previous high of 265 days of Short Term Bond Strategy is smaller, thus better.
  • Looking at maximum days below previous high in of 265 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SHY (666 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.'

Applying this definition to our asset in some examples:
  • The average days below previous high over 5 years of Short Term Bond Strategy is 54 days, which is smaller, thus better compared to the benchmark SHY (201 days) in the same period.
  • During the last 3 years, the average days below previous high is 72 days, which is lower, thus better than the value of 300 days from the benchmark.

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations ()

Allocations

Returns (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of Short Term Bond 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.