Description of Gold-Currency Strategy II

The Gold-Currency Strategy II 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 strategy is an update to the original GLD-USD strategy that uses inverse leveraged ETFs which are not permitted in some retirement accounts.

Statistics of Gold-Currency Strategy II (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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark GLD (19.6%) in the period of the last 5 years, the total return of 21.1% of Gold-Currency Strategy II is greater, thus better.
  • Compared with GLD (28.3%) in the period of the last 3 years, the total return of 16.8% is lower, thus worse.

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.'

Which means for our asset as example:
  • Compared with the benchmark GLD (3.7%) in the period of the last 5 years, the annual return (CAGR) of 3.9% of Gold-Currency Strategy II is greater, thus better.
  • Looking at compounded annual growth rate (CAGR) in of 5.3% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to GLD (8.7%).

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:
  • The volatility over 5 years of Gold-Currency Strategy II is 8.4%, which is smaller, thus better compared to the benchmark GLD (12.5%) in the same period.
  • Looking at 30 days standard deviation in of 6.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to GLD (10.5%).

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:
  • Looking at the downside risk of 9.6% in the last 5 years of Gold-Currency Strategy II, we see it is relatively smaller, thus better in comparison to the benchmark GLD (12.5%)
  • Looking at downside deviation in of 8.8% 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 (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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark GLD (0.09) in the period of the last 5 years, the risk / return profile (Sharpe) of 0.17 of Gold-Currency Strategy II is higher, thus better.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 0.41, which is smaller, thus worse than the value of 0.59 from the benchmark.

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.'

Using this definition on our asset we see for example:
  • Looking at the excess return divided by the downside deviation of 0.15 in the last 5 years of Gold-Currency Strategy II, we see it is relatively greater, thus better in comparison to the benchmark GLD (0.09)
  • Looking at ratio of annual return and downside deviation in of 0.32 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to GLD (0.57).

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:
  • Looking at the Downside risk index of 4.46 in the last 5 years of Gold-Currency Strategy II, we see it is relatively smaller, thus better in comparison to the benchmark GLD (8.85 )
  • Compared with GLD (5.54 ) in the period of the last 3 years, the Ulcer Ratio of 2.88 is lower, thus better.

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:
  • The maximum reduction from previous high over 5 years of Gold-Currency Strategy II is -10.1 days, which is larger, thus better compared to the benchmark GLD (-19.7 days) in the same period.
  • Looking at maximum reduction from previous high in of -6.4 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to GLD (-13.8 days).

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.'

Which means for our asset as example:
  • Looking at the maximum days under water of 605 days in the last 5 years of Gold-Currency Strategy II, we see it is relatively smaller, thus better in comparison to the benchmark GLD (741 days)
  • During the last 3 years, the maximum time in days below previous high water mark is 299 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.'

Applying this definition to our asset in some examples:
  • Looking at the average time in days below previous high water mark of 188 days in the last 5 years of Gold-Currency Strategy II, we see it is relatively lower, thus better in comparison to the benchmark GLD (279 days)
  • During the last 3 years, the average time in days below previous high water mark is 88 days, which is lower, thus better than the value of 102 days from the benchmark.

Performance of Gold-Currency Strategy II (YTD)

Historical returns have been extended using synthetic data.

Allocations of Gold-Currency Strategy II
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Allocations

Returns of Gold-Currency Strategy II (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of Gold-Currency Strategy II 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.