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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SHY (4.8%) in the period of the last 5 years, the total return of 20.9% of Short Term Bond Strategy is higher, thus better.
  • During the last 3 years, the total return is 12.7%, which is larger, thus better than the value of 0.5% from the benchmark.

CAGR:

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Using this definition on our asset we see for example:
  • The annual performance (CAGR) over 5 years of Short Term Bond Strategy is 3.9%, which is higher, thus better compared to the benchmark SHY (0.9%) in the same period.
  • During the last 3 years, the compounded annual growth rate (CAGR) is 4.1%, which is larger, thus better than the value of 0.2% from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • The volatility over 5 years of Short Term Bond Strategy is 2%, which is larger, thus worse compared to the benchmark SHY (1.9%) in the same period.
  • Looking at 30 days standard deviation in of 1.3% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SHY (2.2%).

DownVol:

'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:
  • Compared with the benchmark SHY (1.2%) in the period of the last 5 years, the downside deviation of 1.6% of Short Term Bond Strategy is larger, thus worse.
  • Looking at downside deviation in of 0.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SHY (1.5%).

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.'

Which means for our asset as example:
  • Compared with the benchmark SHY (-0.83) in the period of the last 5 years, the Sharpe Ratio of 0.68 of Short Term Bond Strategy is higher, thus better.
  • Looking at risk / return profile (Sharpe) in of 1.18 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SHY (-1.05).

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.'

Which means for our asset as example:
  • Compared with the benchmark SHY (-1.27) in the period of the last 5 years, the ratio of annual return and downside deviation of 0.85 of Short Term Bond Strategy is greater, thus better.
  • During the last 3 years, the ratio of annual return and downside deviation is 1.87, which is larger, thus better than the value of -1.57 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.'

Which means for our asset as example:
  • The Ulcer Index over 5 years of Short Term Bond Strategy is 0.52 , which is smaller, thus better compared to the benchmark SHY (2.27 ) in the same period.
  • Looking at Ulcer Ratio in of 0.45 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SHY (2.93 ).

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.'

Which means for our asset as example:
  • The maximum DrawDown over 5 years of Short Term Bond Strategy is -5.2 days, which is higher, thus better compared to the benchmark SHY (-5.7 days) in the same period.
  • Looking at maximum reduction from previous high in of -2 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SHY (-5.7 days).

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.'

Which means for our asset as example:
  • Compared with the benchmark SHY (711 days) in the period of the last 5 years, the maximum days under water of 265 days of Short Term Bond Strategy is lower, thus better.
  • Looking at maximum time in days below previous high water mark in of 265 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SHY (711 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.'

Using this definition on our asset we see for example:
  • Looking at the average time in days below previous high water mark of 52 days in the last 5 years of Short Term Bond Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SHY (225 days)
  • Compared with SHY (340 days) in the period of the last 3 years, the average days below previous high of 75 days is lower, 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 and do not account for slippage, fees or taxes.
  • Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.