Description of Treasury Hedge

Statistics of Treasury Hedge (YTD)

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TotalReturn:

'Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Using this definition on our asset we see for example:
  • The total return over 5 years of Treasury Hedge is 44%, which is higher, thus better compared to the benchmark AGG (15%) in the same period.
  • During the last 3 years, the total return, or increase in value is 28.4%, which is greater, thus better than the value of 12.7% 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:
  • Looking at the annual return (CAGR) of 7.6% in the last 5 years of Treasury Hedge, we see it is relatively greater, thus better in comparison to the benchmark AGG (2.8%)
  • Compared with AGG (4.1%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 8.7% is higher, thus better.

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:
  • Compared with the benchmark AGG (3.1%) in the period of the last 5 years, the volatility of 8.2% of Treasury Hedge is larger, thus worse.
  • Compared with AGG (2.9%) in the period of the last 3 years, the volatility of 6.3% is larger, thus worse.

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.'

Applying this definition to our asset in some examples:
  • Looking at the downside deviation of 9.9% in the last 5 years of Treasury Hedge, we see it is relatively higher, thus worse in comparison to the benchmark AGG (3.3%)
  • During the last 3 years, the downside deviation is 7.8%, which is higher, thus worse than the value of 3% 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.'

Using this definition on our asset we see for example:
  • The Sharpe Ratio over 5 years of Treasury Hedge is 0.62, which is higher, thus better compared to the benchmark AGG (0.11) in the same period.
  • Looking at Sharpe Ratio in of 0.98 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to AGG (0.55).

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.'

Using this definition on our asset we see for example:
  • Looking at the ratio of annual return and downside deviation of 0.51 in the last 5 years of Treasury Hedge, we see it is relatively greater, thus better in comparison to the benchmark AGG (0.1)
  • Looking at downside risk / excess return profile in of 0.79 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to AGG (0.52).

Ulcer:

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Applying this definition to our asset in some examples:
  • The Ulcer Ratio over 5 years of Treasury Hedge is 3.95 , which is higher, thus worse compared to the benchmark AGG (1.64 ) in the same period.
  • Compared with AGG (1.4 ) in the period of the last 3 years, the Ulcer Index of 1.79 is larger, thus worse.

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.'

Applying this definition to our asset in some examples:
  • The maximum drop from peak to valley over 5 years of Treasury Hedge is -14.4 days, which is lower, thus worse compared to the benchmark AGG (-4.5 days) in the same period.
  • During the last 3 years, the maximum reduction from previous high is -7.5 days, which is smaller, thus worse than the value of -3.5 days from the benchmark.

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). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Applying this definition to our asset in some examples:
  • The maximum time in days below previous high water mark over 5 years of Treasury Hedge is 256 days, which is lower, thus better compared to the benchmark AGG (331 days) in the same period.
  • Compared with AGG (331 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 110 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.'

Which means for our asset as example:
  • The average days below previous high over 5 years of Treasury Hedge is 55 days, which is lower, thus better compared to the benchmark AGG (115 days) in the same period.
  • During the last 3 years, the average days under water is 29 days, which is smaller, thus better than the value of 89 days from the benchmark.

Performance of Treasury Hedge (YTD)

Historical returns have been extended using synthetic data.

Allocations of Treasury Hedge
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Allocations

Returns of Treasury Hedge (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of Treasury Hedge 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.