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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark QQQ (112.9%) in the period of the last 5 years, the total return, or performance of 163.7% of NASDAQ 100 Low Volatility Strategy is larger, thus better.
  • Looking at total return, or increase in value in of 81.2% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to QQQ (74.8%).

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.'

Applying this definition to our asset in some examples:
  • Looking at the annual performance (CAGR) of 21.4% 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 (16.3%)
  • During the last 3 years, the annual performance (CAGR) is 21.9%, which is larger, 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.'

Which means for our asset as example:
  • The historical 30 days volatility over 5 years of NASDAQ 100 Low Volatility Strategy is 14.3%, which is lower, thus better compared to the benchmark QQQ (16.9%) in the same period.
  • During the last 3 years, the 30 days standard deviation is 13.8%, which is lower, thus better than the value of 16.7% from the benchmark.

DownVol:

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Which means for our asset as example:
  • The downside deviation over 5 years of NASDAQ 100 Low Volatility Strategy is 15.9%, which is lower, thus better compared to the benchmark QQQ (19%) in the same period.
  • During the last 3 years, the downside risk is 15.9%, which is smaller, thus better than the value of 19% from the benchmark.

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 (0.82) in the period of the last 5 years, the Sharpe Ratio of 1.32 of NASDAQ 100 Low Volatility Strategy is larger, thus better.
  • Compared with QQQ (1.08) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 1.41 is larger, thus better.

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:
  • Compared with the benchmark QQQ (0.73) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.19 of NASDAQ 100 Low Volatility Strategy is larger, thus better.
  • During the last 3 years, the ratio of annual return and downside deviation is 1.22, which is higher, thus better than the value of 0.94 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark QQQ (4.93 ) in the period of the last 5 years, the Ulcer Index of 4.15 of NASDAQ 100 Low Volatility Strategy is smaller, thus worse.
  • During the last 3 years, the Downside risk index is 4.79 , which is lower, thus worse than the value of 4.83 from the benchmark.

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 -18.8 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)
  • 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 higher, 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.'

Using this definition on our asset we see for example:
  • The maximum days below previous high over 5 years of NASDAQ 100 Low Volatility Strategy is 131 days, which is smaller, thus better compared to the benchmark QQQ (163 days) in the same period.
  • Looking at maximum days under water in of 131 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to QQQ (139 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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark QQQ (32 days) in the period of the last 5 years, the average time in days below previous high water mark of 23 days of NASDAQ 100 Low Volatility Strategy is lower, thus better.
  • During the last 3 years, the average days below previous high is 27 days, which is higher, thus worse than the value of 26 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
()

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.