Description

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.

This 2x leveraged version uses:

  • UBT ProShares Ultra 20+ Year Treasury
  • UGL ProShares Ultra Gold

The equity/bond 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. 

Statistics (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.'

Using this definition on our asset we see for example:
  • The total return, or performance over 5 years of Hedge Strategy 2x Leverage is 42.6%, which is higher, thus better compared to the benchmark AGG (16.9%) in the same period.
  • During the last 3 years, the total return, or performance is 57.8%, which is larger, thus better than the value of 17.6% from the benchmark.

CAGR:

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Which means for our asset as example:
  • Compared with the benchmark AGG (3.2%) in the period of the last 5 years, the annual performance (CAGR) of 7.4% of Hedge Strategy 2x Leverage is greater, thus better.
  • Compared with AGG (5.6%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 16.4% is greater, thus better.

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (4.6%) in the period of the last 5 years, the volatility of 22.8% of Hedge Strategy 2x Leverage is higher, thus worse.
  • Compared with AGG (5.4%) in the period of the last 3 years, the 30 days standard deviation of 24.7% is greater, thus worse.

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 deviation of 16.2% in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively larger, thus worse in comparison to the benchmark AGG (3.5%)
  • Looking at downside volatility in of 17.4% in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to AGG (4.2%).

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:
  • Looking at the Sharpe Ratio of 0.21 in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively greater, thus better in comparison to the benchmark AGG (0.15)
  • Looking at ratio of return and volatility (Sharpe) in of 0.56 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (0.56).

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 ratio of annual return and downside deviation of 0.3 in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively greater, thus better in comparison to the benchmark AGG (0.19)
  • Compared with AGG (0.73) in the period of the last 3 years, the excess return divided by the downside deviation of 0.8 is greater, thus better.

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 AGG (1.81 ) in the period of the last 5 years, the Downside risk index of 19 of Hedge Strategy 2x Leverage is higher, thus worse.
  • During the last 3 years, the Downside risk index is 13 , which is higher, thus worse than the value of 1.43 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.'

Using this definition on our asset we see for example:
  • The maximum DrawDown over 5 years of Hedge Strategy 2x Leverage is -35.7 days, which is lower, thus worse compared to the benchmark AGG (-9.6 days) in the same period.
  • Looking at maximum reduction from previous high in of -35.7 days in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to AGG (-9.6 days).

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'

Applying this definition to our asset in some examples:
  • Looking at the maximum time in days below previous high water mark of 772 days in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively larger, thus worse in comparison to the benchmark AGG (331 days)
  • Looking at maximum days below previous high in of 213 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to AGG (215 days).

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 time in days below previous high water mark of 272 days in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively higher, thus worse in comparison to the benchmark AGG (109 days)
  • Looking at average days below previous high in of 61 days in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to AGG (49 days).

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations
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Allocations

Returns (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of Hedge Strategy 2x Leverage 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.