Description of NASDAQ 100 Low Volatility Strategy

The NASDAQ 100 is a sub-strategy.

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 Low Volatility Strategy (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Applying this definition to our asset in some examples:
  • The total return over 5 years of NASDAQ 100 Low Volatility Strategy is 176.1%, which is larger, thus better compared to the benchmark QQQ (106.9%) in the same period.
  • During the last 3 years, the total return, or performance is 79.8%, which is larger, thus better than the value of 78.3% from the benchmark.

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 annual return (CAGR) of 22.5% in the last 5 years of NASDAQ 100 Low Volatility Strategy, we see it is relatively greater, thus better in comparison to the benchmark QQQ (15.7%)
  • Compared with QQQ (21.3%) in the period of the last 3 years, the annual performance (CAGR) of 21.7% 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.'

Which means for our asset as example:
  • Compared with the benchmark QQQ (17.2%) in the period of the last 5 years, the historical 30 days volatility of 14.2% of NASDAQ 100 Low Volatility Strategy is lower, thus better.
  • Compared with QQQ (17.3%) in the period of the last 3 years, the historical 30 days volatility of 13.1% is lower, thus better.

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 QQQ (19.3%) in the period of the last 5 years, the downside risk of 16% of NASDAQ 100 Low Volatility Strategy is lower, thus better.
  • Compared with QQQ (20%) in the period of the last 3 years, the downside deviation of 15.5% is lower, thus better.

Sharpe:

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Using this definition on our asset we see for example:
  • Compared with the benchmark QQQ (0.76) in the period of the last 5 years, the Sharpe Ratio of 1.42 of NASDAQ 100 Low Volatility Strategy is larger, thus better.
  • Compared with QQQ (1.09) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 1.46 is larger, 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark QQQ (0.68) in the period of the last 5 years, the excess return divided by the downside deviation of 1.25 of NASDAQ 100 Low Volatility Strategy is larger, thus better.
  • Compared with QQQ (0.94) in the period of the last 3 years, the ratio of annual return and downside deviation of 1.24 is higher, thus better.

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.'

Which means for our asset as example:
  • The Ulcer Index over 5 years of NASDAQ 100 Low Volatility Strategy is 4.31 , which is lower, thus better compared to the benchmark QQQ (5.01 ) in the same period.
  • Compared with QQQ (4.97 ) in the period of the last 3 years, the Ulcer Ratio of 5.03 is greater, thus worse.

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 DrawDown of -19.6 days in the last 5 years of NASDAQ 100 Low Volatility Strategy, we see it is relatively larger, thus better in comparison to the benchmark QQQ (-22.8 days)
  • Looking at maximum reduction from previous high in of -19.6 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to QQQ (-22.8 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) in days.'

Which means for our asset as example:
  • Compared with the benchmark QQQ (163 days) in the period of the last 5 years, the maximum days below previous high of 193 days of NASDAQ 100 Low Volatility Strategy is higher, thus worse.
  • During the last 3 years, the maximum time in days below previous high water mark is 193 days, which is higher, thus worse than the value of 154 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.'

Using this definition on our asset we see for example:
  • Looking at the average days under water of 31 days in the last 5 years of NASDAQ 100 Low Volatility Strategy, we see it is relatively lower, thus better in comparison to the benchmark QQQ (35 days)
  • Looking at average time in days below previous high water mark in of 39 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to QQQ (30 days).

Performance of NASDAQ 100 Low Volatility Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of NASDAQ 100 Low Volatility Strategy
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Allocations

Returns of NASDAQ 100 Low Volatility Strategy (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of NASDAQ 100 Low Volatility 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.