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:

'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 GLD (18.1%) in the period of the last 5 years, the total return of 54.1% of Leveraged Gold-Currency Strategy is larger, thus better.
  • Looking at total return, or performance in of 14.3% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to GLD (27.5%).

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.'

Using this definition on our asset we see for example:
  • The annual return (CAGR) over 5 years of Leveraged Gold-Currency Strategy is 9%, which is greater, thus better compared to the benchmark GLD (3.4%) in the same period.
  • Compared with GLD (8.5%) in the period of the last 3 years, the annual performance (CAGR) of 4.6% is lower, thus worse.

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.'

Using this definition on our asset we see for example:
  • Looking at the 30 days standard deviation of 9.1% in the last 5 years of Leveraged Gold-Currency Strategy, we see it is relatively smaller, thus better in comparison to the benchmark GLD (12.5%)
  • Looking at 30 days standard deviation in of 6.7% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to GLD (10.4%).

DownVol:

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

Which means for our asset as example:
  • Compared with the benchmark GLD (12.5%) in the period of the last 5 years, the downside volatility of 9% of Leveraged Gold-Currency Strategy is smaller, thus better.
  • Looking at downside deviation in of 7.1% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to GLD (10.9%).

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.'

Which means for our asset as example:
  • Looking at the ratio of return and volatility (Sharpe) of 0.72 in the last 5 years of Leveraged Gold-Currency Strategy, we see it is relatively larger, thus better in comparison to the benchmark GLD (0.07)
  • Compared with GLD (0.57) in the period of the last 3 years, the Sharpe Ratio of 0.31 is smaller, thus worse.

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 (0.07) in the period of the last 5 years, the ratio of annual return and downside deviation of 0.73 of Leveraged Gold-Currency Strategy is greater, thus better.
  • During the last 3 years, the downside risk / excess return profile is 0.29, which is lower, thus worse than the value of 0.55 from the benchmark.

Ulcer:

'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.'

Which means for our asset as example:
  • The Ulcer Index over 5 years of Leveraged Gold-Currency Strategy is 3.62 , which is smaller, thus better compared to the benchmark GLD (8.85 ) in the same period.
  • Looking at Ulcer Ratio in of 3.18 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to GLD (5.55 ).

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:
  • Compared with the benchmark GLD (-19.7 days) in the period of the last 5 years, the maximum drop from peak to valley of -10.1 days of Leveraged Gold-Currency Strategy is larger, thus better.
  • During the last 3 years, the maximum reduction from previous high is -9.2 days, which is greater, thus better than the value of -13.8 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 time in days below previous high water mark over 5 years of Leveraged Gold-Currency Strategy is 181 days, which is lower, thus better compared to the benchmark GLD (741 days) in the same period.
  • During the last 3 years, the maximum days under water is 181 days, which is lower, thus better than the value of 352 days from the benchmark.

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:
  • Looking at the average days under water of 50 days in the last 5 years of Leveraged Gold-Currency Strategy, we see it is relatively lower, thus better in comparison to the benchmark GLD (279 days)
  • Looking at average days under water in of 54 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to GLD (102 days).

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 (%)

  • Note that yearly returns do not equal 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.