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:
  • Looking at the total return of 104.2% in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively higher, thus better in comparison to the benchmark AGG (0.4%)
  • During the last 3 years, the total return, or performance is 40.8%, which is larger, thus better than the value of -8.4% 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 annual performance (CAGR) over 5 years of Hedge Strategy 2x Leverage is 15.4%, which is greater, thus better compared to the benchmark AGG (0.1%) in the same period.
  • Looking at compounded annual growth rate (CAGR) in of 12.1% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (-2.9%).

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:
  • The historical 30 days volatility over 5 years of Hedge Strategy 2x Leverage is 16%, which is larger, thus worse compared to the benchmark AGG (6.7%) in the same period.
  • During the last 3 years, the 30 days standard deviation is 14.3%, which is larger, thus worse than the value of 6.8% from the benchmark.

DownVol:

'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:
  • Compared with the benchmark AGG (4.9%) in the period of the last 5 years, the downside deviation of 10.8% of Hedge Strategy 2x Leverage is higher, thus worse.
  • Compared with AGG (4.9%) in the period of the last 3 years, the downside volatility of 9.6% is greater, thus worse.

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:
  • Compared with the benchmark AGG (-0.36) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.8 of Hedge Strategy 2x Leverage is larger, thus better.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 0.67, which is larger, thus better than the value of -0.79 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.'

Applying this definition to our asset in some examples:
  • Looking at the excess return divided by the downside deviation of 1.19 in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively higher, thus better in comparison to the benchmark AGG (-0.49)
  • Compared with AGG (-1.1) in the period of the last 3 years, the excess return divided by the downside deviation of 1 is greater, 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:
  • The Ulcer Index over 5 years of Hedge Strategy 2x Leverage is 9.1 , which is higher, thus worse compared to the benchmark AGG (8.72 ) in the same period.
  • During the last 3 years, the Ulcer Index is 9.67 , which is lower, thus better than the value of 11 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.'

Which means for our asset as example:
  • Looking at the maximum reduction from previous high of -22.9 days in the last 5 years of Hedge Strategy 2x Leverage, we see it is relatively smaller, thus worse in comparison to the benchmark AGG (-18.4 days)
  • Compared with AGG (-17.8 days) in the period of the last 3 years, the maximum reduction from previous high of -22.9 days is lower, thus worse.

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:
  • The maximum days below previous high over 5 years of Hedge Strategy 2x Leverage is 500 days, which is lower, thus better compared to the benchmark AGG (953 days) in the same period.
  • During the last 3 years, the maximum time in days below previous high water mark is 500 days, which is lower, thus better than the value of 702 days from the benchmark.

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:
  • The average time in days below previous high water mark over 5 years of Hedge Strategy 2x Leverage is 158 days, which is smaller, thus better compared to the benchmark AGG (388 days) in the same period.
  • Compared with AGG (334 days) in the period of the last 3 years, the average days below previous high of 184 days is lower, 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 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.