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:

'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.'

Which means for our asset as example:
  • The total return over 5 years of NASDAQ 100 Low Volatility Strategy is 184%, which is larger, thus better compared to the benchmark QQQ (103.5%) in the same period.
  • Compared with QQQ (68.3%) in the period of the last 3 years, the total return, or increase in value of 82.6% is larger, 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:
  • The compounded annual growth rate (CAGR) over 5 years of NASDAQ 100 Low Volatility Strategy is 23.2%, which is higher, thus better compared to the benchmark QQQ (15.3%) in the same period.
  • During the last 3 years, the annual performance (CAGR) is 22.3%, which is greater, thus better than the value of 19% from the benchmark.

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:
  • Looking at the historical 30 days volatility of 14.3% 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 (17.3%)
  • During the last 3 years, the volatility is 13.2%, which is lower, thus better than the value of 17.3% 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.'

Which means for our asset as example:
  • The downside deviation over 5 years of NASDAQ 100 Low Volatility Strategy is 16.1%, which is smaller, thus better compared to the benchmark QQQ (19.4%) in the same period.
  • Looking at downside volatility in of 15.5% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to QQQ (19.6%).

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.'

Using this definition on our asset we see for example:
  • The ratio of return and volatility (Sharpe) over 5 years of NASDAQ 100 Low Volatility Strategy is 1.45, which is higher, thus better compared to the benchmark QQQ (0.74) in the same period.
  • Looking at risk / return profile (Sharpe) in of 1.5 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to QQQ (0.96).

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.'

Which means for our asset as example:
  • Looking at the downside risk / excess return profile of 1.29 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 (0.66)
  • During the last 3 years, the ratio of annual return and downside deviation is 1.28, which is greater, thus better than the value of 0.84 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.'

Applying this definition to our asset in some examples:
  • Looking at the Ulcer Index of 4.32 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 (5.02 )
  • During the last 3 years, the Downside risk index is 5.06 , which is larger, thus worse than the value of 4.97 from the benchmark.

MaxDD:

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Using this definition on our asset we see for example:
  • Looking at the maximum drop from peak to valley of -19.6 days 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 (-22.8 days)
  • Compared with QQQ (-22.8 days) in the period of the last 3 years, the maximum reduction from previous high of -19.6 days is greater, 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:
  • The maximum days under water over 5 years of NASDAQ 100 Low Volatility Strategy is 193 days, which is higher, thus worse compared to the benchmark QQQ (163 days) in the same period.
  • Looking at maximum time in days below previous high water mark in of 193 days in the period of the last 3 years, we see it is relatively greater, 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.'

Applying this definition to our asset in some examples:
  • 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 31 days of NASDAQ 100 Low Volatility Strategy is lower, thus better.
  • 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 larger, thus worse in comparison to QQQ (29 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 (%)

  • "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.