Today’s post features the first risk review column for major asset classes, a monthly update that accompanies the monthly and readers can use this trio for a quick summary of historical and expected performance and how that compares to several measures of risk.
Risk analysis is a wide and deep topic and therefore this monthly update will not be anyone’s idea of ââa full treatment. Rather, the aim is to offer a comparison of the major asset classes in one fell swoop for a range of metrics – a comparison that isn’t exactly ubiquitous among the usual suspects for financial news.
With that in mind, the table below highlights several types of risk for the 10-year window to the end of last month (April 30, 2021). To get an idea of ââhow risk accumulates relative to performance, assets are categorized by 10-year annualized return.
For the underlying indices which represent the asset classes, you can refer to the table in the performance report publication referenced above.
For a bit of historical context on the evolution of risk, a regular feature of this update will be a graph of the annualized 3-year Sharpe ratio for US stocks (Russell 3000 index), US bonds (Bloomberg Aggregate Bond index). ) and the Global Market Index (GMI), an unmanaged, market-value-weighted portfolio that holds all major asset classes (except cash) and represents a theoretical benchmark for the portfolio. optimal â.
3-year rolling annualized Sharpe ratio
For reference, here are brief definitions of each risk measure:
- Volatility: annualized standard deviation of monthly return
- Sharpness ratio: monthly returns / monthly volatility ratio (the risk-free rate is assumed to be zero)
- Output report: Downside excess performance of the semi-variance (assuming a target threshold of 0%)
- Ulcer index: duration of drawdowns by selecting a negative return for each period below the previous peak or high water mark
- Maximum draft: deepest decline from peak to trough
- Beta: measure of the volatility relative to an index (here GMI)
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