{"id":1991881,"date":"2014-05-23T20:35:57","date_gmt":"2014-05-23T15:05:57","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=1991881"},"modified":"2014-09-09T12:04:11","modified_gmt":"2014-09-09T06:34:11","slug":"smart-beta-strategy-return-analysis","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2014\/05\/23\/smart-beta-strategy-return-analysis\/","title":{"rendered":"Smart Beta Strategy Return Analysis"},"content":{"rendered":"

The best part about StockViz Investment Themes is that you can setup a portfolio of stocks that follows a particular strategy. It is a convenient way for you to:<\/p>\n

    \n
  1. stick to a strategy<\/li>\n
  2. follow a preset rebalancing schedule<\/li>\n
  3. think in terms of your portfolio strategy rather than individual stocks<\/li>\n
  4. avoid common behavioral pitfalls<\/li>\n
  5. systematically track your P&L and strategy performance<\/li>\n<\/ol>\n

    In StockViz, there are two smart-beta themes: Market Fliers<\/a> tracks a high-volatility and high-beta portfolio while Market Elephants<\/a> tracks a low-beta portfolio. Between the two strategies and the Nifty, what should an investor prefer?<\/p>\n

    Daily Returns<\/h3>\n

    In a bull-market, such as the one we are in, it makes sense to be in a high-beta portfolio. Notice how narrow the low-beta histogram is compared to high-beta, indicating little variation in day-to-day returns. However, you cannot escape the gigantic 10%+ outlier in the Market Fliers.<\/p>\n

    Nifty<\/strong><\/p>\n

    \"nifty-returns-histogram\"<\/a><\/p>\n

    High Beta (Market Fliers)<\/strong><\/p>\n

    \"high-beta-returns-histogram\"<\/a><\/p>\n

    Low Beta (Market Elephants)<\/strong><\/p>\n

    \"low-beta-returns-histogram\"<\/a><\/p>\n

    Drawdowns<\/h3>\n

    Any investment will have drawdowns: it is the peak-to-trough decline during a specific period. Market fliers had a horrible couple of months in December-Jan where it saw a jaw-dropping 20% draw-down that took 29 days to recover from.<\/p>\n

    Nifty<\/strong><\/p>\n

    \n
    \n\n\n\n\n\n\n\n\n\n
    From<\/th>\nTrough<\/th>\nTo<\/th>\nDepth<\/th>\nLength<\/th>\nTo Trough<\/th>\nRecovery<\/th>\n<\/tr>\n<\/thead>\n
    2013-Dec-10<\/td>\n2014-Feb-04<\/td>\n2014-Mar-06<\/td>\n-0.057<\/td>\n61<\/td>\n40<\/td>\n21<\/td>\n<\/tr>\n
    2013-Nov-05<\/td>\n2013-Nov-13<\/td>\n2013-Dec-09<\/td>\n-0.0519<\/td>\n24<\/td>\n7<\/td>\n17<\/td>\n<\/tr>\n
    2014-Apr-25<\/td>\n2014-May-07<\/td>\n2014-May-09<\/td>\n-0.0275<\/td>\n10<\/td>\n8<\/td>\n2<\/td>\n<\/tr>\n
    2014-Apr-11<\/td>\n2014-Apr-16<\/td>\n2014-Apr-21<\/td>\n-0.0178<\/td>\n5<\/td>\n3<\/td>\n2<\/td>\n<\/tr>\n
    2014-Apr-03<\/td>\n2014-Apr-04<\/td>\n2014-Apr-09<\/td>\n-0.0086<\/td>\n4<\/td>\n2<\/td>\n2<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

    High Beta (Market Fliers)<\/strong><\/p>\n

    \n
    \n\n\n\n\n\n
    From<\/th>\nTrough<\/th>\nTo<\/th>\nDepth<\/th>\nLength<\/th>\nTo Trough<\/th>\nRecovery<\/th>\n<\/tr>\n<\/thead>\n
    2013-Dec-09<\/td>\n2014-Feb-12<\/td>\n2014-Mar-27<\/td>\n-0.1955<\/td>\n75<\/td>\n46<\/td>\n29<\/td>\n<\/tr>\n2013-Nov-05<\/td>\n2013-Nov-12<\/td>\n2013-Dec-08<\/td>\n-0.1083<\/td>\n22<\/td>\n5<\/td>\n17<\/td>\n<\/tr>\n2014-Apr-10<\/td>\n2014-Apr-15<\/td>\n2014-May-11<\/td>\n-0.0751<\/td>\n18<\/td>\n3<\/td>\n15<\/td>\n<\/tr>\n2014-Apr-02<\/td>\n2014-Apr-02<\/td>\n2014-Apr-08<\/td>\n-0.0215<\/td>\n4<\/td>\n1<\/td>\n3<\/td>\n<\/tr>\n2014-Mar-31<\/td>\n2014-Mar-31<\/td>\n2014-Apr-01<\/td>\n-0.0092<\/td>\n2<\/td>\n1<\/td>\n1<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

    Low Beta (Market Elephants)<\/strong><\/p>\n

    \n
    \n\n\n\n\n\n
    From<\/th>\nTrough<\/th>\nTo<\/th>\nDepth<\/th>\nLength<\/th>\nTo Trough<\/th>\nRecovery<\/th>\n<\/tr>\n<\/thead>\n
    2014-Jan-15<\/td>\n2014-Feb-12<\/td>\n2014-Feb-27<\/td>\n-0.0427<\/td>\n31<\/td>\n21<\/td>\n10<\/td>\n<\/tr>\n2013-Nov-04<\/td>\n2013-Nov-25<\/td>\n2013-Dec-02<\/td>\n-0.0338<\/td>\n19<\/td>\n14<\/td>\n5<\/td>\n<\/tr>\n2014-Apr-24<\/td>\n2014-May-06<\/td>\n2014-May-21<\/td>\n-0.0309<\/td>\n19<\/td>\n8<\/td>\n11<\/td>\n<\/tr>\n2013-Dec-03<\/td>\n2013-Dec-12<\/td>\n2013-Dec-15<\/td>\n-0.024<\/td>\n8<\/td>\n7<\/td>\n1<\/td>\n<\/tr>\n2013-Dec-29<\/td>\n2014-Jan-06<\/td>\n2014-Jan-13<\/td>\n-0.0219<\/td>\n12<\/td>\n7<\/td>\n5<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

    Performance<\/h3>\n

    The wealth chart for market filers is basically a parabola at this point. During the period, the Nifty clocked in +19.26%<\/strong>, Market Fliers +72.42%<\/strong> and Market Elephants +21.16%<\/strong><\/p>\n

    Nifty<\/strong><\/p>\n

    \"nifty-returns\"<\/a><\/p>\n

    High Beta (Market Fliers)<\/strong><\/p>\n

    \"high-beta-returns\"<\/a><\/p>\n

    Low Beta (Market Elephants)<\/strong><\/p>\n

    \"low-beta-returns\"<\/a><\/p>\n

    Performance vs. Drawdown<\/h3>\n

    How do you tell if these Themes are better than the Nifty? One way to measure relative performance is through the Calmar ratio and the Sterling ratio.<\/p>\n

    The Calmar ratio is a comparison of the average annual compounded rate of return and the maximum drawdown risk. The lower the Calmar Ratio, the worse the investment performed on a risk-adjusted basis over the specified time period; the higher the Calmar Ratio, the better it performed. <\/p>\n

    The Sterling ratio = Compounded Annual Return ÷ (Avg. Max Drawdown – 10%)<\/p>\n

    Just like the Calmar ratio, a higher Sterling ratio is generally better because it means that the investment is receiving a higher return relative to risk.<\/p>\n

    \n
    \n\n\n\n\n\n\n\n
    <\/th>\nCalmar Ratio<\/th>\nSterling Ratio<\/th>\n<\/tr>\n<\/thead>\n
    Nifty<\/strong><\/td>\n6.487609<\/td>\n2.35644<\/td>\n<\/tr>\n
    Market Fliers<\/strong><\/td>\n8.720311<\/td>\n5.768798<\/td>\n<\/tr>\n
    Market Elephants<\/strong><\/td>\n9.828884<\/td>\n2.942523<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

    As you can see, smart beta strategies beat the Nifty both in absolute returns and in risk.<\/p>\n

     
    \n 
    \nNote:<\/strong> The analysis starts from 2013-Oct-28.<\/small>
    \n 
    \n <\/p>\n","protected":false},"excerpt":{"rendered":"

    The best part about StockViz Investment Themes is that you can setup a portfolio of stocks that follows a particular strategy. It is a convenient way for you to: stick to a strategy follow a preset rebalancing schedule think in terms of your portfolio strategy rather than individual stocks avoid common behavioral pitfalls systematically track … <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471,9],"tags":[960,2541],"class_list":["post-1991881","post","type-post","status-publish","format-standard","hentry","category-investing-insight","category-your-money","tag-returns","tag-theme","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/1991881","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=1991881"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/1991881\/revisions"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=1991881"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=1991881"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=1991881"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}