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.'

Which means for our asset as example:
  • The total return over 5 years of Hedge Strategy 2x Leverage is 114.8%, which is greater, thus better compared to the benchmark AGG (22.6%) in the same period.
  • Looking at total return, or performance in of 86.3% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (16.4%).

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:
  • Looking at the compounded annual growth rate (CAGR) of 16.5% in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively greater, thus better in comparison to the benchmark AGG (4.2%)
  • Compared with AGG (5.2%) in the period of the last 3 years, the annual return (CAGR) of 23.1% is greater, thus better.

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:
  • Looking at the historical 30 days volatility of 22.9% in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively higher, thus worse in comparison to the benchmark AGG (4.6%)
  • During the last 3 years, the 30 days standard deviation is 23.6%, which is higher, thus worse than the value of 5.4% from the benchmark.

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:
  • The downside volatility over 5 years of Hedge Strategy 2x Leverage is 15.9%, which is higher, thus worse compared to the benchmark AGG (3.5%) in the same period.
  • Looking at downside volatility in of 16.4% in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to AGG (4.1%).

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.'

Which means for our asset as example:
  • Looking at the risk / return profile (Sharpe) of 0.61 in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively higher, thus better in comparison to the benchmark AGG (0.36)
  • During the last 3 years, the Sharpe Ratio is 0.87, which is greater, thus better than the value of 0.5 from the benchmark.

Sortino:

'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.'

Which means for our asset as example:
  • Compared with the benchmark AGG (0.48) in the period of the last 5 years, the downside risk / excess return profile of 0.88 of Hedge Strategy 2x Leverage is higher, thus better.
  • Compared with AGG (0.65) in the period of the last 3 years, the ratio of annual return and downside deviation of 1.26 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.'

Applying this definition to our asset in some examples:
  • The Ulcer Ratio over 5 years of Hedge Strategy 2x Leverage is 17 , which is higher, thus worse compared to the benchmark AGG (1.62 ) in the same period.
  • During the last 3 years, the Downside risk index is 8.93 , which is higher, thus worse than the value of 1.4 from the benchmark.

MaxDD:

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Applying this definition to our asset in some examples:
  • The maximum reduction from previous high over 5 years of Hedge Strategy 2x Leverage is -32.6 days, which is smaller, thus worse compared to the benchmark AGG (-9.6 days) in the same period.
  • Looking at maximum drop from peak to valley in of -25.8 days in the period of the last 3 years, we see it is relatively lower, 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'

Using this definition on our asset we see for example:
  • Compared with the benchmark AGG (331 days) in the period of the last 5 years, the maximum days under water of 772 days of Hedge Strategy 2x Leverage is higher, thus worse.
  • Compared with AGG (259 days) in the period of the last 3 years, the maximum days below previous high of 345 days is higher, thus worse.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark AGG (94 days) in the period of the last 5 years, the average time in days below previous high water mark of 261 days of Hedge Strategy 2x Leverage is larger, thus worse.
  • Compared with AGG (62 days) in the period of the last 3 years, the average days under water of 100 days is larger, thus worse.

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.