Description of Leveraged Gold-Currency Strategy

The Leveraged Gold-Currency Strategy takes advantage of the historically negative correlation between gold and the U.S. dollar. It switches between the two assets based on their recent risk adjusted performance enabling the strategy to provide protection against severe gold corrections due to dollar strength. It is an excellent addition to existing equity or bond portfolios as it holds very little correlation to either.

This version of the strategy uses inverse leveraged ETFs to generate higher returns, but some retirement accounts are restricted from trading these ETFs. GLD-UUP provides an alternate form of the strategy without leveraged ETFs which also lowers the overall return and volatility.

Statistics of Leveraged Gold-Currency Strategy (YTD)

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

TotalReturn:

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Which means for our asset as example:
  • Looking at the total return of 80.7% in the last 5 years of Leveraged Gold-Currency Strategy, we see it is relatively larger, thus better in comparison to the benchmark GLD (13.8%)
  • Compared with GLD (11.7%) in the period of the last 3 years, the total return of 21.6% is greater, 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.'

Which means for our asset as example:
  • The compounded annual growth rate (CAGR) over 5 years of Leveraged Gold-Currency Strategy is 12.6%, which is larger, thus better compared to the benchmark GLD (2.6%) in the same period.
  • Compared with GLD (3.8%) in the period of the last 3 years, the annual return (CAGR) of 6.7% is larger, thus better.

Volatility:

'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.'

Applying this definition to our asset in some examples:
  • Looking at the volatility of 10% in the last 5 years of Leveraged Gold-Currency Strategy, we see it is relatively lower, thus better in comparison to the benchmark GLD (13%)
  • During the last 3 years, the volatility is 7.4%, which is smaller, thus better than the value of 10.7% 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:
  • Compared with the benchmark GLD (12.9%) in the period of the last 5 years, the downside risk of 9.8% of Leveraged Gold-Currency Strategy is smaller, thus better.
  • Looking at downside risk in of 7.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to GLD (11.1%).

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark GLD (0.01) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 1.01 of Leveraged Gold-Currency Strategy is larger, thus better.
  • Compared with GLD (0.12) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.58 is larger, thus better.

Sortino:

'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.'

Which means for our asset as example:
  • Compared with the benchmark GLD (0.01) in the period of the last 5 years, the downside risk / excess return profile of 1.03 of Leveraged Gold-Currency Strategy is larger, thus better.
  • Looking at downside risk / excess return profile in of 0.55 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to GLD (0.11).

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:
  • Compared with the benchmark GLD (9.07 ) in the period of the last 5 years, the Downside risk index of 3.53 of Leveraged Gold-Currency Strategy is smaller, thus better.
  • Looking at Downside risk index in of 3.07 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to GLD (7.42 ).

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.'

Which means for our asset as example:
  • Looking at the maximum reduction from previous high of -10.1 days in the last 5 years of Leveraged Gold-Currency Strategy, we see it is relatively greater, thus better in comparison to the benchmark GLD (-19.9 days)
  • During the last 3 years, the maximum drop from peak to valley is -9.2 days, which is larger, thus better than the value of -16.9 days from the benchmark.

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'

Which means for our asset as example:
  • Compared with the benchmark GLD (741 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 172 days of Leveraged Gold-Currency Strategy is smaller, thus better.
  • Compared with GLD (712 days) in the period of the last 3 years, the maximum days below previous high of 149 days is lower, thus better.

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:
  • Compared with the benchmark GLD (310 days) in the period of the last 5 years, the average days under water of 43 days of Leveraged Gold-Currency Strategy is lower, thus better.
  • During the last 3 years, the average time in days below previous high water mark is 44 days, which is lower, thus better than the value of 343 days from the benchmark.

Performance of Leveraged Gold-Currency Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of Leveraged Gold-Currency Strategy
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Allocations

Returns of Leveraged Gold-Currency Strategy (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Leveraged Gold-Currency 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.