Description of Top 3 Strategies

This strategy selects the top three performers from our core strategies, based on the most recent 3 month performance, and allocates one third to each of them.

Note that very often the strategy will invest in the more aggressive of our strategies, which might not be suitable for all investors. You can create your version of this strategy with our Portfolio Builder. Simply select the top 2, 3, or 4 strategies and assign equal weights to each or adjust your allocations for your risk level. You will need to manually review and update the top performers periodically.

Methodology & Assets

All of our current strategies are included in the algorithm.

Statistics of Top 3 Strategies (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.'

Applying this definition to our asset in some examples:
  • Looking at the total return of 141.3% in the last 5 years of Top 3 Strategies, we see it is relatively larger, thus better in comparison to the benchmark SPY (65.8%)
  • Looking at total return, or increase in value in of 80.4% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (48.8%).

CAGR:

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Using this definition on our asset we see for example:
  • Looking at the annual return (CAGR) of 19.3% in the last 5 years of Top 3 Strategies, we see it is relatively greater, thus better in comparison to the benchmark SPY (10.6%)
  • Looking at compounded annual growth rate (CAGR) in of 21.8% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (14.2%).

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (13.6%) in the period of the last 5 years, the 30 days standard deviation of 10.1% of Top 3 Strategies is lower, thus better.
  • Compared with SPY (12.8%) in the period of the last 3 years, the 30 days standard deviation of 9.1% is smaller, thus better.

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 Top 3 Strategies is 11.4%, which is lower, thus better compared to the benchmark SPY (15%) in the same period.
  • Compared with SPY (14.6%) in the period of the last 3 years, the downside volatility of 10.4% is lower, thus better.

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (0.6) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 1.67 of Top 3 Strategies is greater, thus better.
  • Looking at Sharpe Ratio in of 2.11 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.91).

Sortino:

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Using this definition on our asset we see for example:
  • Looking at the excess return divided by the downside deviation of 1.47 in the last 5 years of Top 3 Strategies, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.54)
  • Compared with SPY (0.8) in the period of the last 3 years, the downside risk / excess return profile of 1.85 is higher, thus better.

Ulcer:

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (4.03 ) in the period of the last 5 years, the Downside risk index of 2.53 of Top 3 Strategies is lower, thus better.
  • Compared with SPY (4.1 ) in the period of the last 3 years, the Downside risk index of 1.75 is lower, thus better.

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:
  • Compared with the benchmark SPY (-19.3 days) in the period of the last 5 years, the maximum drop from peak to valley of -10.7 days of Top 3 Strategies is larger, thus better.
  • During the last 3 years, the maximum drop from peak to valley is -7.2 days, which is greater, thus better than the value of -19.3 days from the benchmark.

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'

Which means for our asset as example:
  • Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 153 days of Top 3 Strategies is lower, thus better.
  • Looking at maximum days below previous high in of 134 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (139 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.'

Using this definition on our asset we see for example:
  • The average days under water over 5 years of Top 3 Strategies is 33 days, which is lower, thus better compared to the benchmark SPY (41 days) in the same period.
  • Looking at average time in days below previous high water mark in of 30 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (35 days).

Performance of Top 3 Strategies (YTD)

Historical returns have been extended using synthetic data.

Allocations of Top 3 Strategies
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Allocations

Returns of Top 3 Strategies (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Top 3 Strategies 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.