This sub-strategy looks at two components and chooses the most appropriate one: A Treasury and a GLD-USD sub-strategy. The addition of gold provides an option for prolonged inflationary environments that could place bonds in a multi-year bear market.

The equity/bond (or in our case HEDGE) pair is interesting because most of the time these two asset classes profit from an inverse correlation. If there is a real stock market correction, money typically flows towards treasuries and gold rewarding holders and providing crash protection.

'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:- Compared with the benchmark SPY (88.1%) in the period of the last 5 years, the total return, or increase in value of 57.5% of Hedge Strategy is smaller, thus worse.
- Looking at total return in of 11.9% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (26.1%).

'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.'

Applying this definition to our asset in some examples:- The annual performance (CAGR) over 5 years of Hedge Strategy is 9.5%, which is lower, thus worse compared to the benchmark SPY (13.5%) in the same period.
- Compared with SPY (8.1%) in the period of the last 3 years, the annual return (CAGR) of 3.8% is smaller, thus worse.

'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 historical 30 days volatility of 7.9% in the last 5 years of Hedge Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (20.9%)
- During the last 3 years, the historical 30 days volatility is 3.5%, which is smaller, thus better than the value of 17.3% from the benchmark.

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

Using this definition on our asset we see for example:- The downside volatility over 5 years of Hedge Strategy is 5.4%, which is lower, thus better compared to the benchmark SPY (15%) in the same period.
- Looking at downside volatility in of 2.5% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (12.1%).

'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.'

Applying this definition to our asset in some examples:- Looking at the Sharpe Ratio of 0.89 in the last 5 years of Hedge Strategy, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.52)
- Looking at ratio of return and volatility (Sharpe) in of 0.37 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.32).

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Applying this definition to our asset in some examples:- The ratio of annual return and downside deviation over 5 years of Hedge Strategy is 1.3, which is greater, thus better compared to the benchmark SPY (0.73) in the same period.
- During the last 3 years, the excess return divided by the downside deviation is 0.54, which is higher, thus better than the value of 0.46 from the benchmark.

'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:- The Ulcer Ratio over 5 years of Hedge Strategy is 2.97 , which is smaller, thus better compared to the benchmark SPY (9.33 ) in the same period.
- Compared with SPY (10 ) in the period of the last 3 years, the Ulcer Ratio of 2.95 is smaller, thus better.

'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.'

Using this definition on our asset we see for example:- Looking at the maximum reduction from previous high of -10.8 days in the last 5 years of Hedge Strategy, we see it is relatively greater, thus better in comparison to the benchmark SPY (-33.7 days)
- Looking at maximum DrawDown in of -4.9 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (-24.5 days).

'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) in days.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (488 days) in the period of the last 5 years, the maximum days below previous high of 513 days of Hedge Strategy is higher, thus worse.
- During the last 3 years, the maximum days under water is 513 days, which is higher, thus worse than the value of 488 days from the benchmark.

'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.'

Applying this definition to our asset in some examples:- The average days under water over 5 years of Hedge Strategy is 147 days, which is larger, thus worse compared to the benchmark SPY (123 days) in the same period.
- Looking at average days below previous high in of 195 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (179 days).

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Hedge 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.