Description of NASDAQ 100 Leaders Strategy

The NASDAQ 100 leaders is a sub- strategy that uses proprietary risk-adjusted momentum to pick the most appropriate 4 NASDAQ 100 stocks. It is part for the Nasdaq 100 hedged strategy where it is combined with a variable hedge.

Methodology & Assets

The model chooses four individual stocks from the NASDAQ 100 stock index. So depending on what stocks are in the NASDAQ 100, the stock rotation formula might include the new ones.

Statistics of NASDAQ 100 Leaders Strategy (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:
  • Compared with the benchmark QQQ (117.1%) in the period of the last 5 years, the total return, or increase in value of 740.1% of NASDAQ 100 Leaders Strategy is higher, thus better.
  • Looking at total return, or increase in value in of 325.6% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to QQQ (75.6%).

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:
  • Compared with the benchmark QQQ (16.8%) in the period of the last 5 years, the annual performance (CAGR) of 53.1% of NASDAQ 100 Leaders Strategy is larger, thus better.
  • Looking at compounded annual growth rate (CAGR) in of 62.3% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to QQQ (20.7%).

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Applying this definition to our asset in some examples:
  • The volatility over 5 years of NASDAQ 100 Leaders Strategy is 28.9%, which is larger, thus worse compared to the benchmark QQQ (16.9%) in the same period.
  • During the last 3 years, the volatility is 30.2%, which is higher, thus worse than the value of 16.8% from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • The downside volatility over 5 years of NASDAQ 100 Leaders Strategy is 31.4%, which is greater, thus worse compared to the benchmark QQQ (19%) in the same period.
  • Looking at downside volatility in of 33.7% in the period of the last 3 years, we see it is relatively larger, thus worse in comparison to QQQ (19.5%).

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark QQQ (0.85) in the period of the last 5 years, the Sharpe Ratio of 1.75 of NASDAQ 100 Leaders Strategy is higher, thus better.
  • Compared with QQQ (1.08) in the period of the last 3 years, the Sharpe Ratio of 1.98 is greater, thus better.

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:
  • Compared with the benchmark QQQ (0.75) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.61 of NASDAQ 100 Leaders Strategy is greater, thus better.
  • Looking at downside risk / excess return profile in of 1.77 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to QQQ (0.93).

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.'

Using this definition on our asset we see for example:
  • Looking at the Downside risk index of 8.77 in the last 5 years of NASDAQ 100 Leaders Strategy, we see it is relatively higher, thus better in comparison to the benchmark QQQ (4.91 )
  • Looking at Downside risk index in of 9.9 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to QQQ (4.8 ).

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark QQQ (-22.8 days) in the period of the last 5 years, the maximum drop from peak to valley of -35.8 days of NASDAQ 100 Leaders Strategy is lower, thus worse.
  • During the last 3 years, the maximum drop from peak to valley is -35.8 days, which is lower, thus worse than the value of -22.8 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.'

Which means for our asset as example:
  • The maximum days under water over 5 years of NASDAQ 100 Leaders Strategy is 161 days, which is lower, thus better compared to the benchmark QQQ (163 days) in the same period.
  • Looking at maximum days below previous high in of 161 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to QQQ (154 days).

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.'

Using this definition on our asset we see for example:
  • The average days below previous high over 5 years of NASDAQ 100 Leaders Strategy is 28 days, which is lower, thus better compared to the benchmark QQQ (34 days) in the same period.
  • Compared with QQQ (28 days) in the period of the last 3 years, the average days below previous high of 32 days is higher, thus worse.

Performance of NASDAQ 100 Leaders Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of NASDAQ 100 Leaders Strategy
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Allocations

Returns of NASDAQ 100 Leaders Strategy (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of NASDAQ 100 Leaders Strategy 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.