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:

'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:
  • Compared with the benchmark GLD (6.3%) in the period of the last 5 years, the total return of 10.4% of Gold-Currency Strategy II is higher, thus better.
  • Compared with GLD (4.4%) in the period of the last 3 years, the total return of 0.4% 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.'

Using this definition on our asset we see for example:
  • The annual return (CAGR) over 5 years of Gold-Currency Strategy II is 2%, which is larger, thus better compared to the benchmark GLD (1.2%) in the same period.
  • Compared with GLD (1.4%) in the period of the last 3 years, the annual return (CAGR) of 0.1% is lower, thus worse.

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 30 days standard deviation of 8.1% in the last 5 years of Gold-Currency Strategy II, we see it is relatively lower, thus better in comparison to the benchmark GLD (12.9%)
  • Compared with GLD (10.5%) in the period of the last 3 years, the historical 30 days volatility of 6.2% is smaller, thus better.

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:
  • The downside deviation over 5 years of Gold-Currency Strategy II is 9%, which is lower, thus better compared to the benchmark GLD (12.8%) in the same period.
  • Looking at downside volatility in of 8.1% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to GLD (11%).

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 GLD (-0.1) in the period of the last 5 years, the Sharpe Ratio of -0.06 of Gold-Currency Strategy II is larger, thus better.
  • During the last 3 years, the risk / return profile (Sharpe) is -0.38, which is lower, thus worse than the value of -0.1 from the benchmark.

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:
  • Looking at the downside risk / excess return profile of -0.06 in the last 5 years of Gold-Currency Strategy II, we see it is relatively larger, thus better in comparison to the benchmark GLD (-0.1)
  • Looking at downside risk / excess return profile in of -0.29 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to GLD (-0.1).

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 4.85 in the last 5 years of Gold-Currency Strategy II, we see it is relatively lower, thus better in comparison to the benchmark GLD (9.51 )
  • During the last 3 years, the Ulcer Index is 4.16 , which is lower, thus better than the value of 8.14 from the benchmark.

MaxDD:

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Which means for our asset as example:
  • Compared with the benchmark GLD (-20.9 days) in the period of the last 5 years, the maximum drop from peak to valley of -10.1 days of Gold-Currency Strategy II is higher, thus better.
  • During the last 3 years, the maximum reduction from previous high is -9 days, which is greater, thus better than the value of -17.6 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 days below previous high of 606 days of Gold-Currency Strategy II is smaller, thus better.
  • Looking at maximum time in days below previous high water mark in of 606 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to GLD (724 days).

AveDuration:

'The Average 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. 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.'

Which means for our asset as example:
  • The average days under water over 5 years of Gold-Currency Strategy II is 187 days, which is lower, thus better compared to the benchmark GLD (318 days) in the same period.
  • Looking at average time in days below previous high water mark in of 261 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to GLD (353 days).

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 (%)

  • "Year" returns in the table above are not equal to 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.