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:

'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.'

Which means for our asset as example:
  • Looking at the total return, or performance of 102.6% in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively greater, thus better in comparison to the benchmark AGG (3.3%)
  • During the last 3 years, the total return, or performance is 13.3%, which is higher, thus better than the value of -12.9% 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.'

Using this definition on our asset we see for example:
  • The compounded annual growth rate (CAGR) over 5 years of Hedge Strategy 2x Leverage is 15.2%, which is larger, thus better compared to the benchmark AGG (0.7%) in the same period.
  • During the last 3 years, the annual performance (CAGR) is 4.3%, which is larger, thus better than the value of -4.5% from the benchmark.

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.'

Which means for our asset as example:
  • Looking at the 30 days standard deviation of 15.7% in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively larger, thus worse in comparison to the benchmark AGG (6.5%)
  • Looking at historical 30 days volatility in of 14.2% in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to AGG (6.5%).

DownVol:

'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 risk over 5 years of Hedge Strategy 2x Leverage is 10.6%, which is higher, thus worse compared to the benchmark AGG (4.8%) in the same period.
  • During the last 3 years, the downside risk is 9.6%, which is greater, thus worse than the value of 4.7% from the benchmark.

Sharpe:

'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.'

Using this definition on our asset we see for example:
  • The ratio of return and volatility (Sharpe) over 5 years of Hedge Strategy 2x Leverage is 0.81, which is higher, thus better compared to the benchmark AGG (-0.28) in the same period.
  • Compared with AGG (-1.07) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 0.12 is larger, 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:
  • Compared with the benchmark AGG (-0.38) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.2 of Hedge Strategy 2x Leverage is greater, thus better.
  • Compared with AGG (-1.49) in the period of the last 3 years, the downside risk / excess return profile of 0.18 is higher, thus better.

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:
  • Compared with the benchmark AGG (7.99 ) in the period of the last 5 years, the Downside risk index of 9.04 of Hedge Strategy 2x Leverage is higher, thus worse.
  • During the last 3 years, the Ulcer Index is 10 , which is higher, thus worse than the value of 9.97 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:
  • Compared with the benchmark AGG (-18.4 days) in the period of the last 5 years, the maximum DrawDown of -22.9 days of Hedge Strategy 2x Leverage is smaller, thus worse.
  • Looking at maximum reduction from previous high in of -22.9 days in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to AGG (-18.1 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) in days.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (835 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 434 days of Hedge Strategy 2x Leverage is smaller, thus better.
  • Compared with AGG (731 days) in the period of the last 3 years, the maximum days under water of 434 days is lower, thus better.

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (309 days) in the period of the last 5 years, the average time in days below previous high water mark of 133 days of Hedge Strategy 2x Leverage is lower, thus better.
  • Compared with AGG (357 days) in the period of the last 3 years, the average time in days below previous high water mark of 148 days is smaller, thus better.

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations ()

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.