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:
  • Looking at the total return, or increase in value of 182.1% 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 (117.1%)
  • Compared with QQQ (75.6%) in the period of the last 3 years, the total return, or performance of 91.4% is greater, thus better.

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:
  • Compared with the benchmark QQQ (16.8%) in the period of the last 5 years, the annual return (CAGR) of 23.1% of NASDAQ 100 Low Volatility Strategy is higher, thus better.
  • Compared with QQQ (20.7%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 24.2% is higher, 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:
  • Looking at the 30 days standard deviation of 14.2% 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 (16.9%)
  • Looking at volatility in of 13.6% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to QQQ (16.8%).

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:
  • 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%)
  • Compared with QQQ (19.5%) in the period of the last 3 years, the downside risk of 15.9% 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.'

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 1.44 of NASDAQ 100 Low Volatility Strategy is larger, thus better.
  • Looking at Sharpe Ratio in of 1.6 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to QQQ (1.08).

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:
  • The downside risk / excess return profile over 5 years of NASDAQ 100 Low Volatility Strategy is 1.29, which is greater, thus better compared to the benchmark QQQ (0.75) in the same period.
  • During the last 3 years, the downside risk / excess return profile is 1.37, which is higher, thus better than the value of 0.93 from the benchmark.

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:
  • Looking at the Downside risk index of 4.31 in the last 5 years of NASDAQ 100 Low Volatility Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark QQQ (4.91 )
  • Looking at Ulcer Ratio in of 5.02 in the period of the last 3 years, we see it is relatively greater, 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:
  • Looking at the maximum drop from peak to valley of -18.8 days in the last 5 years of NASDAQ 100 Low Volatility Strategy, we see it is relatively higher, thus better in comparison to the benchmark QQQ (-22.8 days)
  • Compared with QQQ (-22.8 days) in the period of the last 3 years, the maximum drop from peak to valley of -18.8 days is larger, thus better.

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.'

Applying this definition to our asset in some examples:
  • Looking at the maximum time in days below previous high water mark of 173 days in the last 5 years of NASDAQ 100 Low Volatility Strategy, we see it is relatively larger, thus worse in comparison to the benchmark QQQ (163 days)
  • Compared with QQQ (154 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 173 days is higher, thus worse.

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:
  • Looking at the average time in days below previous high water mark of 29 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 (34 days)
  • During the last 3 years, the average time in days below previous high water mark is 36 days, which is larger, thus worse than the value of 28 days from the benchmark.

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.