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 is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Using this definition on our asset we see for example:
  • Looking at the total return, or performance of 14.7% in the last 5 years of Gold-Currency Strategy II, we see it is relatively larger, thus better in comparison to the benchmark GLD (-3.3%)
  • Looking at total return, or increase in value in of 16.1% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to GLD (3.2%).

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 compounded annual growth rate (CAGR) over 5 years of Gold-Currency Strategy II is 2.8%, which is greater, thus better compared to the benchmark GLD (-0.7%) in the same period.
  • Looking at annual performance (CAGR) in of 5.1% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to GLD (1.1%).

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:
  • The 30 days standard deviation over 5 years of Gold-Currency Strategy II is 8.5%, which is lower, thus better compared to the benchmark GLD (13%) in the same period.
  • Compared with GLD (11.4%) in the period of the last 3 years, the volatility of 7.7% is lower, thus better.

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.'

Applying this definition to our asset in some examples:
  • Looking at the downside risk of 9.1% in the last 5 years of Gold-Currency Strategy II, we see it is relatively smaller, thus better in comparison to the benchmark GLD (12.7%)
  • Looking at downside risk in of 8.8% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to GLD (11.6%).

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 Gold-Currency Strategy II is 0.03, which is greater, thus better compared to the benchmark GLD (-0.24) in the same period.
  • Compared with GLD (-0.13) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.34 is higher, thus better.

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:
  • The ratio of annual return and downside deviation over 5 years of Gold-Currency Strategy II is 0.03, which is higher, thus better compared to the benchmark GLD (-0.25) in the same period.
  • During the last 3 years, the ratio of annual return and downside deviation is 0.3, which is larger, thus better than the value of -0.12 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:
  • Compared with the benchmark GLD (9.94 ) in the period of the last 5 years, the Downside risk index of 4.83 of Gold-Currency Strategy II is lower, thus worse.
  • During the last 3 years, the Ulcer Index is 4.03 , which is lower, thus worse than the value of 8.13 from the benchmark.

MaxDD:

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

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 Gold-Currency Strategy II, we see it is relatively greater, thus better in comparison to the benchmark GLD (-22 days)
  • Looking at maximum DrawDown in of -9 days in the period of the last 3 years, we see it is relatively higher, thus better in comparison to GLD (-17.8 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark GLD (679 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.
  • During the last 3 years, the maximum days below previous high is 606 days, which is lower, thus better than the value of 679 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.'

Which means for our asset as example:
  • Looking at the average days under water of 186 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 (286 days)
  • Looking at average time in days below previous high water mark in of 267 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to GLD (311 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.