Description of US sectors long mean reversion

A sub-strategy for the U.S. Sector strategy. It works with short term mean reversion criteria thus penalizing recent winners and favoring sectors that have recently corrected.

Methodology & Assets

See the main US Sector strategy for a detailed asset description.

Statistics of US sectors long mean reversion (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 SPY (68.2%) in the period of the last 5 years, the total return of 104.4% of US sectors long mean reversion is higher, thus better.
  • Compared with SPY (47.7%) in the period of the last 3 years, the total return of 76.7% is greater, thus better.

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.'

Applying this definition to our asset in some examples:
  • The compounded annual growth rate (CAGR) over 5 years of US sectors long mean reversion is 15.4%, which is greater, thus better compared to the benchmark SPY (11%) in the same period.
  • During the last 3 years, the annual performance (CAGR) is 20.9%, which is higher, thus better than the value of 13.9% from the benchmark.

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 SPY (13.2%) in the period of the last 5 years, the historical 30 days volatility of 14.8% of US sectors long mean reversion is greater, thus worse.
  • Compared with SPY (12.4%) in the period of the last 3 years, the historical 30 days volatility of 13.9% is greater, thus worse.

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:
  • Compared with the benchmark SPY (14.6%) in the period of the last 5 years, the downside volatility of 16.7% of US sectors long mean reversion is larger, thus worse.
  • Looking at downside deviation in of 15.9% in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (14%).

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 SPY (0.64) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.87 of US sectors long mean reversion is higher, thus better.
  • Looking at ratio of return and volatility (Sharpe) in of 1.32 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.92).

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 excess return divided by the downside deviation of 0.77 in the last 5 years of US sectors long mean reversion, we see it is relatively greater, thus better in comparison to the benchmark SPY (0.58)
  • Compared with SPY (0.81) in the period of the last 3 years, the downside risk / excess return profile of 1.16 is greater, thus better.

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 SPY (3.95 ) in the period of the last 5 years, the Ulcer Ratio of 7.13 of US sectors long mean reversion is higher, thus better.
  • During the last 3 years, the Ulcer Index is 3.34 , which is lower, thus worse than the value of 4 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.'

Which means for our asset as example:
  • Looking at the maximum DrawDown of -20.9 days in the last 5 years of US sectors long mean reversion, we see it is relatively lower, thus worse in comparison to the benchmark SPY (-19.3 days)
  • Compared with SPY (-19.3 days) in the period of the last 3 years, the maximum drop from peak to valley of -9.4 days is higher, 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:
  • Looking at the maximum time in days below previous high water mark of 362 days in the last 5 years of US sectors long mean reversion, we see it is relatively larger, thus worse in comparison to the benchmark SPY (187 days)
  • During the last 3 years, the maximum days under water is 111 days, which is lower, thus better than the value of 131 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.'

Applying this definition to our asset in some examples:
  • The average days under water over 5 years of US sectors long mean reversion is 77 days, which is larger, thus worse compared to the benchmark SPY (39 days) in the same period.
  • During the last 3 years, the average days under water is 28 days, which is lower, thus better than the value of 33 days from the benchmark.

Performance of US sectors long mean reversion (YTD)

Historical returns have been extended using synthetic data.

Allocations of US sectors long mean reversion
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Allocations

Returns of US sectors long mean reversion (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of US sectors long mean reversion 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.