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:

'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.'

Which means for our asset as example:
  • Looking at the total return of 20.1% in the last 5 years of Short Term Bond Strategy, we see it is relatively larger, thus better in comparison to the benchmark SHY (5.4%)
  • Looking at total return in of 13% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SHY (-0.7%).

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.'

Applying this definition to our asset in some examples:
  • Looking at the compounded annual growth rate (CAGR) of 3.7% in the last 5 years of Short Term Bond Strategy, we see it is relatively higher, thus better in comparison to the benchmark SHY (1.1%)
  • Compared with SHY (-0.2%) in the period of the last 3 years, the annual performance (CAGR) of 4.2% is larger, thus better.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SHY (1.8%) in the period of the last 5 years, the historical 30 days volatility of 2% of Short Term Bond Strategy is greater, thus worse.
  • Compared with SHY (2.2%) in the period of the last 3 years, the historical 30 days volatility of 1.5% is lower, thus better.

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 Short Term Bond Strategy is 1.6%, which is greater, thus worse compared to the benchmark SHY (1.2%) in the same period.
  • During the last 3 years, the downside volatility is 1%, which is lower, thus better than the value of 1.5% from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SHY (-0.77) in the period of the last 5 years, the risk / return profile (Sharpe) of 0.62 of Short Term Bond Strategy is larger, thus better.
  • Looking at ratio of return and volatility (Sharpe) in of 1.08 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SHY (-1.26).

Sortino:

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SHY (-1.19) in the period of the last 5 years, the excess return divided by the downside deviation of 0.77 of Short Term Bond Strategy is higher, thus better.
  • During the last 3 years, the downside risk / excess return profile is 1.67, which is larger, thus better than the value of -1.89 from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SHY (2.27 ) in the period of the last 5 years, the Ulcer Ratio of 0.52 of Short Term Bond Strategy is lower, thus better.
  • During the last 3 years, the Downside risk index is 0.46 , which is smaller, thus better than the value of 2.93 from the benchmark.

MaxDD:

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Applying this definition to our asset in some examples:
  • Looking at the maximum reduction from previous high of -5.2 days in the last 5 years of Short Term Bond Strategy, we see it is relatively higher, thus better in comparison to the benchmark SHY (-5.7 days)
  • Compared with SHY (-5.7 days) in the period of the last 3 years, the maximum DrawDown of -2 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.'

Which means for our asset as example:
  • Compared with the benchmark SHY (640 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 265 days of Short Term Bond Strategy is lower, thus better.
  • Compared with SHY (640 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 265 days is lower, thus better.

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 SHY (189 days) in the period of the last 5 years, the average days below previous high of 53 days of Short Term Bond Strategy is lower, thus better.
  • Compared with SHY (278 days) in the period of the last 3 years, the average days under water of 71 days is smaller, thus better.

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations ()

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.