Description

The Short Term Bond Strategy is essentially a place to park cash that earns interest. When combined with other higher risk strategies it creates a lower risk portfolio and generally improves the portfolio's Sharpe ratio. If your broker pays interest on cash balances that is comparable to the current yield of this strategy, you can choose to keep this allocation in cash instead.

Methodology & Assets

This strategy switches between very low risk ETFs that hold short term corporate or treasury bonds including GSY, MINT and NEAR.

Statistics (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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark TLT (48.5%) in the period of the last 5 years, the total return, or performance of 10.2% of Short Term Bond Strategy is lower, thus worse.
  • During the last 3 years, the total return, or performance is 6.3%, which is lower, thus worse than the value of 36.3% from the benchmark.

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:
  • Looking at the annual performance (CAGR) of 2% in the last 5 years of Short Term Bond Strategy, we see it is relatively lower, thus worse in comparison to the benchmark TLT (8.2%)
  • Compared with TLT (10.9%) in the period of the last 3 years, the annual return (CAGR) of 2% is smaller, thus worse.

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:
  • Compared with the benchmark TLT (13.9%) in the period of the last 5 years, the volatility of 3.2% of Short Term Bond Strategy is smaller, thus better.
  • Looking at 30 days standard deviation in of 4.2% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to TLT (15.2%).

DownVol:

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

Applying this definition to our asset in some examples:
  • Looking at the downside volatility of 2.9% in the last 5 years of Short Term Bond Strategy, we see it is relatively lower, thus better in comparison to the benchmark TLT (9.5%)
  • Compared with TLT (10.2%) in the period of the last 3 years, the downside volatility of 3.8% 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.'

Applying this definition to our asset in some examples:
  • The Sharpe Ratio over 5 years of Short Term Bond Strategy is -0.17, which is smaller, thus worse compared to the benchmark TLT (0.41) in the same period.
  • Looking at ratio of return and volatility (Sharpe) in of -0.11 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to TLT (0.55).

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:
  • Looking at the ratio of annual return and downside deviation of -0.19 in the last 5 years of Short Term Bond Strategy, we see it is relatively smaller, thus worse in comparison to the benchmark TLT (0.6)
  • Looking at downside risk / excess return profile in of -0.12 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to TLT (0.82).

Ulcer:

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Which means for our asset as example:
  • The Ulcer Ratio over 5 years of Short Term Bond Strategy is 0.68 , which is lower, thus better compared to the benchmark TLT (9.21 ) in the same period.
  • Looking at Ulcer Index in of 0.88 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to TLT (4.92 ).

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.'

Which means for our asset as example:
  • Looking at the maximum drop from peak to valley of -9.6 days in the last 5 years of Short Term Bond Strategy, we see it is relatively larger, thus better in comparison to the benchmark TLT (-17.9 days)
  • Compared with TLT (-15.7 days) in the period of the last 3 years, the maximum drop from peak to valley of -9.6 days is larger, thus better.

MaxDuration:

'The Maximum 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. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark TLT (749 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 187 days of Short Term Bond Strategy is smaller, thus better.
  • During the last 3 years, the maximum days under water is 187 days, which is lower, thus better than the value of 315 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.'

Which means for our asset as example:
  • The average time in days below previous high water mark over 5 years of Short Term Bond Strategy is 31 days, which is lower, thus better compared to the benchmark TLT (247 days) in the same period.
  • During the last 3 years, the average time in days below previous high water mark is 49 days, which is lower, thus better than the value of 91 days from the benchmark.

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations
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Allocations

Returns (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of Short Term Bond 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.