This tool allows you to test different market timing and tactical asset allocation models based on moving averages, momentum, market valuation and target volatility.
The supported models include:
You can find a summary of the selected tactical asset allocation model below, and a more detailed description in the FAQ section.
Moving Averages - Single Asset
The moving average timing model is either invested in a specific stock, ETF or mutual fund, or is alternatively in cash or other risk-free asset based on the moving average signal.
The model is invested in the asset when the adjusted close price is greater than the moving average
and the model moves to cash when the adjusted close price is less than the moving average.
The model also supports using moving average cross-over as the signal.
Moving Averages - Portfolio Assets
The moving average model applies the moving average signal to each portfolio asset.
The model is invested in a portfolio asset when the adjusted close price is greater than the moving average
and the allocation is moved to cash when the adjusted close price is less than the moving average.
The model also supports using moving average cross-over as the signal.
Momentum - Relative Strength
The relative strength momentum model invests in the best performing assets in the model based on each asset's past return.
The momentum can be based on a single timing period, or multiple weighted timing periods. Additionally the model supports using
moving averages as a risk control to decide whether investments should be moved to cash.
Tactical asset allocation model results from Jan 2008 to Dec 2020 are based on dual momentum model holding the best performing asset. Absolute momentum based trend following filter is used to switch any selected assets that have a negative excess return over the risk free rate to iShares 1-3 Year Treasury Bond ETF (SHY). The model uses multiple weighted performance windows to rank the assets by weighted average of asset performance. Tactical asset allocation model trades are executed using the end of month close price each month based on the end of month signals.
Performance statistics for the timing portfolio and benchmark portfolios
|Portfolio||Initial Balance||Final Balance||CAGR||Stdev||Best Year||Worst Year||Max. Drawdown||Sharpe Ratio||Sortino Ratio||Market Correlation|
|Dual Momentum Model||$10,000||$39,368||11.12%||11.88%||41.34%||-8.10%||-15.76% ||0.90||1.60||0.59|
|Equal Weight Portfolio||$10,000||$22,574||6.46%||17.47%||33.40%||-40.18%||-51.76% ||0.41||0.59||0.97|
|SPDR S&P 500 ETF Trust||$10,000||$33,351||9.71%||15.91%||32.31%||-36.81%||-48.23% ||0.63||0.92||1.00|
|Name||Total Return||Annualized Return||Annualized Standard Deviation|
|3 Month||Year To Date||1 year||3 year||5 year||10 year||Full||3 year||5 year|
|Dual Momentum Model||15.89%||20.79%||20.79%||10.30%||9.95%||9.43%||11.12%||13.51%||11.28%|
|Equal Weight Portfolio||15.67%||16.07%||16.07%||9.77%||12.35%||9.44%||6.46%||18.44%||15.11%|
|SPDR S&P 500 ETF Trust||12.12%||18.37%||18.37%||14.03%||15.11%||13.76%||9.71%||18.66%||15.15%|
|Trailing return and volatility are as of last full calendar month ending December 2020|
Notes on results:
- IMPORTANT: The projections or other information generated by Portfolio Visualizer regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time.
- The results do not constitute investment advice or recommendation, are provided solely for informational purposes, and are not an offer to buy or sell any securities. All use is subject to terms of service.
- Investing involves risk, including possible loss of principal. Past performance is not a guarantee of future results.
- Asset allocation and diversification strategies do not guarantee a profit or protect against a loss.
- Hypothetical returns do not reflect trading costs, transaction fees, commissions, or actual taxes due on investment returns.
- The results are based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete.
- Refer to the related documentation sections for more details on terms and definitions, methodology, and data sources.
- The simulated performance results are created by retroactively applying the specified investment strategy to historical data. Future results may vary.
- The results are based on the total return of assets and assume that all received dividends and distributions are reinvested.
- Compound annualized growth rate (CAGR) is the annualized geometric mean return of the portfolio. It is calculated from the portfolio start and end balance and is thus impacted by any cashflows.
- The time-weighted rate of return (TWRR) is a measure of the compound rate of growth in a portfolio. This is calculated from the holding period returns (e.g. monthly returns), and TWRR will thus not be impacted by cashflows. If there are no external cashflows, TWRR will equal CAGR.
- The money-weighted rate of return (MWRR) is the internal rate of return (IRR) taking into account cashflows. This is the discount rate at which the present value of cash inflows equals the present value of cash outflows.
- Total return is the combined return in income and capital appreciation from investment in an asset. Yield measures the current cash income received from investment in an asset. Bonds provide yield in the form of interest payments and stocks through dividends.
- Standard deviation (Stdev) is used to measure the dispersion of returns around the mean and is often used as a measure of risk. A higher standard deviation implies greater the dispersion of data points around the mean.
- Sharpe Ratio is a measure of risk-adjusted performance of the portfolio, and it is calculated by dividing the mean monthly excess return of the portfolio over the risk-free rate by the standard deviation of excess return, and the displayed value is annualized.
- Sortino Ratio is a measure of risk-adjusted return which is a modification of the Sharpe Ratio. While the latter is the ratio of average returns in excess of a risk-free rate divided by the standard deviation of those excess returns, the Sortino Ratio has the same denominator divided by the standard deviation of returns below the risk-free rate.
- Treynor Ratio is a measure of risk-adjusted performance of the portfolio. It is similar to the Sharpe Ratio, but it uses portfolio beta (systematic risk) as the risk metric in the denominator.
- Calmar Ratio is a measure of risk-adjusted performance of the portfolio. It is calculated as the annualized return over the past 36 months divided by the maximum drawdown over the past 36 months based on monthly returns.
- Risk-free returns are calculated based on the Federal Reserve 3-Month Treasury Bill (secondary market) rates.
- Downside deviation measures the downside volatility of the portfolio returns unlike standard deviation, which includes both upside and downside deviations. Downside deviation is calculated based on negative returns that hurt the portfolio performance.
- Skewness is a measure of the asymmetry of the probability distribution or returns from a normal Gaussian distribution shape about its mean. Negative skewness is associated with the left (typically negative returns) tail of the distribution extending further than the right tail; and positive skewness is associated with the right (typically positive returns) tail of the distribution extending further than the left tail.
- Excess kurtosis is a measure of whether a data distribution is peaked or flat relative to a normal distribution. Distributions with high kurtosis tend to have a distinct peak near the mean, decline rather rapidly, and have heavy or fat tails.
- A drawdown refers to the decline in value of a single investment or an investment portfolio from a relative peak value to a relative trough. A maximum drawdown (Max Drawdown) is the maximum observed loss from a peak to a trough of a portfolio before a new peak is attained. Drawdown values are calculated based on monthly returns.
- Value at Risk (VaR) measures the scale of loss at a given confidence level. If the 5% VaR is -3% the portfolio return is expected to be greater than -3% 95% of the time and less than -3% 5% of the time. Value at Risk can be calculated directly based on historical returns based on a given percentile or analytically based on the mean and standard deviation of the returns.
- Conditional Value at Risk (CVaR) measures the scale of the expected loss once the specific Value at Risk (VaR) breakpoint has been breached, i.e., it calculates the average tail loss by taking a weighted average between the value at risk and losses exceeding the value at risk.
- Beta is a measure of systematic risk and measures the volatility of a particular investment relative to the market or its benchmark. Alpha measures the active return of the investment compared to the market benchmark return. R-squared is the percentage of a portfolio's movements that can be explained by movements in the selected benchmark index.
- Active return is the investment return minus the return of its benchmark. For periods longer than 12 months this is displayed as annualized value, i.e., annualized investment return minus annualized benchmark return.
- Tracking error, also known as active risk, is the standard deviation of active return. This is displayed as annualized value based on the standard deviation of monthly active returns.
- Information ratio is the active return divided by the tracking error. It measures whether the investment outperformed its benchmark consistently.
- Gain/Loss ratio is a measure of downside risk, and it is calculated as the average positive return in up periods divided by the average negative return in down periods.
- Upside Capture Ratio measures how well the fund performed relative to the benchmark when the market was up, and Downside Capture Ratio measures how well the fund performed relative to the benchmark when the market was down. An upside capture ratio greater than 100 would indicate that the fund outperformed its benchmark when the market was up, and a downside capture ratio below 100 would indicate that the fund lost less than its benchmark when the market was down. To calculate upside capture ratio a new series from the portfolio returns is constructed by dropping all time periods where the benchmark return is less than equal to zero. The up capture is then the quotient of the annualized return of the resulting manager series, divided by the annualized return of the resulting benchmark series. The downside capture ratio is calculated analogously.
- All risk measures for the portfolio and portfolio assets are calculated based on monthly returns.
- The selected portfolio allocation for comparison assumes monthly rebalancing.
- An equal-weight allocation is used for the assets held by the momentum model.
- The results for the tactical asset allocation model assume monthly rebalancing trades.
- The relative strength signal is based on total return including dividends.
Drawdowns for Historical Market Stress Periods
Drawdowns for Historical Market Stress Periods
|Stress Period||Start||End||Dual Momentum Model||Equal Weight Portfolio||SPDR S&P 500 ETF Trust|
|COVID-19 Start||Jan 2020||Mar 2020||-8.06%||-22.13%||-19.43%|
Drawdowns for Dual Momentum Model
Drawdowns for Equal Weight Portfolio
Drawdowns for SPDR S&P 500 ETF Trust
Rolling returns summary
|Roll Period||Dual Momentum Model||Equal Weight Portfolio||SPDR S&P 500 ETF Trust|