Stock market cagr

Muhammed Ali was known for floating like a butterfly and stinging like a bee. We all want to have the best of both worlds. Results and analysis of year and year backtests are also provided. The system can easily be understood and implemented using unspecialized tools and without the need for complex mathematical calculations. A web search of rotation strategies inevitably returns countless ways of trading between US stocks and US long treasuries in light of various market conditions.

Many of these systems require sophisticated charting and analysis of the underlyings in order to determine the appropriate trigger. The data used by many of these systems is not readily available on popular websites like Google Finance and the like.

Further, the signals relied on by these systems e. This article presents a simple approach that can be implemented in Excel or a hand calculator with minimal effort or sophistication. People follow other people. This fact is terribly true in trading, and is the basis of the trading system presented: An investment is made in the ETF having the highest prior x-day performance.

The x-day performance is calculated daily by dividing the current close by the close x days ago. These calculations can be performed in Excel, on a napkin at the bar, or in one's head. The data is available at almost all of the popular investment websites. Although the x-day performance is calculated each day, trades are rarely signaled daily.

Only 89 trades were made in the year backtest period. The day lookback provided maximal returns over the past 10 years, and was used for the results below. From January 1, to December 31,the results of the system versus SPY and TLT are:. This trounces the 9. While performance is improved versus buying and holding SPY, it can be seen that the risk aligns more closely with the TLT bond fund.

The "Stdev" metric above reflects the average annual standard deviation of returns, a generally accepted measure of volatility. The average annual volatility of the system is quite close to the TLT bond fund volatility airasia stock market less than the SPY's volatility.

The Sharpe ratio is the CAGR divided by the average annual standard deviation of returns. It is an indicator of the relative trade-off of risk and reward.

In other stock market cagr, the higher the Sharpe ratio, the less risk you are exposed to for each percentage point of returns. By providing returns that meet or exceed the stock market while also providing a lower volatility, you can see that the Sharpe ratio for the proposed trading system is significantly improved when compared to SPY or TLT.

The reduced drawdown supplies for stockbrokers at no cost to performance, anzac day trading hours stockland rockhampton the ratio of CAGR to maximum drawdown shows.

CAGR of the Stock Market: Annualized Returns of the S&P

The system's returns were nearly four times less risky than the TLT long bond ETF. Lastly, we see stock market cagr parameters that are named "linearity" and "Growth. For this, one fits a linear regression to the natural log of the system's returns. One then calculates the root-mean-square of the differences between the system's logarithm returns and the regression line.

The result is labeled "linearity. Thus, the linearity is a measure of volatility, but it differs from "stdev" in that it measures volatility from a growth curve rather than from a constant.

The label Growth" in the table refers to the Growth ratio, which is the CAGR divided by the linearity. You can find further discussion of these parameters on my blog.

Returns of the proposed system, SPY, and TLT since January 1, author's analysis. Also, despite what many may think, even the long bond ETF shows clear volatility. The system, in blue, steadily climbs with relatively little variation. The performance of the system plotted on a log scale is shown below in comparison to the ideal growth regression curve:. Returns of the proposed system and ideal pork bellies stock exchange curve on a log scale author's analysis.

One thing to notice is how consistently the system sticks to the growth curve over time, which is what linearity attempts to measure. Notice that there were no down years using the proposed system since January 1, In order to test the system further back in time, I chose to try it against similar mutual funds: FDVLX for stocks and VUSTX for long bonds. Using the same day lookback period, the results from January 1, are remarkably similar to the ETF-traded system:.

Despite the various market conditions over the past 23 years, the log returns are quite straight as shown below:. Returns of the fund-based system and ideal growth curve on a log scale author's analysis. The year ETF backtest provided maximal returns when the lookback was set to This article also provides results for different values of the lookback parameter ranging from 65 to 99 days:.

Wait, What's the Real Average Stock Market Return? | Club Thrifty

Returns and Sharpe are maximal with a lookback period of 85 days, but all values beat the SPY ETF's return 9. It was also seen that the results exhibited generally constant exponential growth over a year backtest period. In light of this analysis, we find it highly probable going forward that risk reduction can be achieved without compromising returns through a simple rotation between stocks and bonds based on prior price performance as described above.

I am long SSO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article. Portfolio Strategy Fixed Income Bonds Financial Advisors Retirement Editor's Picks. Return Like A Stock, Risk Like A Bond: SPY and TLT A Simplified Approach A web search of rotation strategies inevitably returns countless ways of trading between US stocks and US long treasuries in light of various market conditions.

The Basis Of The Proposed System: Want to share your opinion on this article? Disagree with this article? To report a factual error in this article, click here. Follow Marc Cohn and get email alerts.