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, 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:
  • Compared with the benchmark QQQ (110.6%) in the period of the last 5 years, the total return of 171.8% of NASDAQ 100 Low Volatility Strategy is larger, thus better.
  • Looking at total return, or increase in value in of 75.8% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to QQQ (74.8%).

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.'

Which means for our asset as example:
  • Compared with the benchmark QQQ (16.1%) in the period of the last 5 years, the annual performance (CAGR) of 22.2% of NASDAQ 100 Low Volatility Strategy is higher, thus better.
  • During the last 3 years, the annual return (CAGR) is 20.7%, which is greater, thus better than the value of 20.5% from the benchmark.

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:
  • Looking at the volatility of 14.3% in the last 5 years of NASDAQ 100 Low Volatility Strategy, we see it is relatively smaller, thus better in comparison to the benchmark QQQ (17%)
  • Looking at volatility in of 13% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to QQQ (16.7%).

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.'

Using this definition on our asset we see for example:
  • Looking at the downside risk of 16% 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 (19.1%)
  • Looking at downside risk in of 15% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to QQQ (19.3%).

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:
  • The risk / return profile (Sharpe) over 5 years of NASDAQ 100 Low Volatility Strategy is 1.38, which is larger, thus better compared to the benchmark QQQ (0.8) in the same period.
  • Compared with QQQ (1.08) in the period of the last 3 years, the Sharpe Ratio of 1.4 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:
  • The ratio of annual return and downside deviation over 5 years of NASDAQ 100 Low Volatility Strategy is 1.23, which is higher, thus better compared to the benchmark QQQ (0.71) in the same period.
  • Looking at downside risk / excess return profile in of 1.22 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to QQQ (0.94).

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:
  • Looking at the Ulcer Ratio of 4.33 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 (4.98 )
  • Compared with QQQ (4.89 ) in the period of the last 3 years, the Downside risk index of 5.04 is larger, 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.'

Applying this definition to our asset in some examples:
  • The maximum reduction from previous high over 5 years of NASDAQ 100 Low Volatility Strategy is -18.8 days, which is larger, thus better compared to the benchmark QQQ (-22.8 days) in the same period.
  • During the last 3 years, the maximum reduction from previous high is -18.8 days, which is larger, thus better than the value of -22.8 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) in days.'

Which means for our asset as example:
  • The maximum days under water over 5 years of NASDAQ 100 Low Volatility Strategy is 194 days, which is larger, thus worse compared to the benchmark QQQ (163 days) in the same period.
  • Looking at maximum days under water in of 194 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 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:
  • Compared with the benchmark QQQ (34 days) in the period of the last 5 years, the average time in days below previous high water mark of 32 days of NASDAQ 100 Low Volatility Strategy is lower, thus better.
  • Compared with QQQ (28 days) in the period of the last 3 years, the average time in days below previous high water mark of 42 days is larger, thus worse.

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 (%)

  • "Year" returns in the table above are not equal to 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.