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, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (0%) in the period of the last 5 years, the total return, or performance of 64.9% of Hedge Strategy 2x Leverage is larger, thus better.
  • Looking at total return in of 27.2% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (-5.3%).

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.'

Applying this definition to our asset in some examples:
  • Looking at the compounded annual growth rate (CAGR) of 10.5% in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively larger, thus better in comparison to the benchmark AGG (0%)
  • Looking at annual return (CAGR) in of 8.4% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (-1.8%).

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (6.8%) in the period of the last 5 years, the volatility of 16.2% of Hedge Strategy 2x Leverage is larger, thus worse.
  • Looking at volatility in of 14.7% in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to AGG (7.1%).

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.'

Which means for our asset as example:
  • The downside deviation over 5 years of Hedge Strategy 2x Leverage is 11.1%, which is larger, thus worse compared to the benchmark AGG (5%) in the same period.
  • Compared with AGG (5%) in the period of the last 3 years, the downside deviation of 10% is higher, thus worse.

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 AGG (-0.37) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.5 of Hedge Strategy 2x Leverage is greater, thus better.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 0.4, which is higher, thus better than the value of -0.61 from the benchmark.

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 excess return divided by the downside deviation of 0.72 in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively greater, thus better in comparison to the benchmark AGG (-0.5)
  • During the last 3 years, the ratio of annual return and downside deviation is 0.59, which is larger, thus better than the value of -0.86 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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (9.18 ) in the period of the last 5 years, the Downside risk index of 9.29 of Hedge Strategy 2x Leverage is greater, thus worse.
  • Looking at Downside risk index in of 9.92 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to AGG (10 ).

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:
  • The maximum drop from peak to valley over 5 years of Hedge Strategy 2x Leverage is -22.9 days, which is lower, thus worse compared to the benchmark AGG (-18.4 days) in the same period.
  • During the last 3 years, the maximum reduction from previous high is -22.9 days, which is lower, thus worse than the value of -16.9 days from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • Looking at the maximum time in days below previous high water mark of 500 days in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively smaller, thus better in comparison to the benchmark AGG (1095 days)
  • During the last 3 years, the maximum days under water is 500 days, which is lower, thus better than the value of 752 days from the benchmark.

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:
  • Compared with the benchmark AGG (498 days) in the period of the last 5 years, the average days under water of 155 days of Hedge Strategy 2x Leverage is lower, thus better.
  • During the last 3 years, the average time in days below previous high water mark is 182 days, which is smaller, thus better than the value of 377 days from the benchmark.

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 and do not account for slippage, fees or taxes.
  • Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.