CCPI investment periods of different length

As we announced in the previous section, now it is time to analyse the distribution of returns, volatility and maximum drawdown for timeperiods (in the past) of different lengths. Although a different choice can be made, we’ll do the analysis with the floor set at 0.8. For the other parameters we use the optimal settings, we found in the previous section:

  • monthly rebalancing
  • m=6 for floors 0.8

Again we will use S&P500 (SPY) as the risky asset en we’ll set the risky rate at 0.5%.

As we did for SMI and DMI, we will analyse the results for one-, three-, five- and ten-year investment periods. But we will add fifteen-year periods. For SPY we have data starting in January 1993. We ‘ll start a new period every day since this date and we’ll analyse the results for all periods.

We’ll show all the figures first. Next we will discuss the results.

CCPI results in investment periods of different length

Figure 1 Annualized Returns CCPI for 1-year investment periods with floor 0.8 and m 6
Figure 2 Annualized Volatility CCPI for 1-year investment periods with floor 0.8 and m 6
Figure 3 Maximum Drawdown CCPI for 1-year investment periods with floor 0.8 and m 6
Figure 4 Annualized Returns CCPI for 3-year investment periods with floor 0.8 and m 6
Figure 5 Annualized Volatility CCPI for 3-year investment periods with floor 0.8 and m 6
Figure 6 Maximum Drawdown CCPI for 3-year investment periods with floor 0.8 and m 6
Figure 7 Annualized Returns CCPI for 5-year investment periods with floor 0.8 and m 6
Figure 8 Annualized Volatility CCPI for 5-year investment periods with floor 0.8 and m 6
Figure 9 Maximum Drawdown CCPI for 5-year investment periods with floor 0.8 and m 6
Figure 10 Annualized Returns CCPI for 10-year investment periods with floor 0.8 and m 6
Figure 11 Annualized Volatility CCPI for 10-year investment periods with floor 0.8 and m 6
Figure 12 Maximum Drawdown CCPI for 10-year investment periods with floor 0.8 and m 6
Figure 13 Annualized Returns CCPI for 15-year investment periods with floor 0.8 and m 6
Figure 14 Annualized Volatility CCPI for 15-year investment periods with floor 0.8 and m 6
Figure 15 Maximum Drawdown CCPI for 15-year investment periods with floor 0.8 and m 6

Analysis: CCPI results in investment periods of different length

As we can see in the figures with Annualized Returns (=Compound Average Growth Rate, CAGR), for investment periods of all lengths, the average annualized return is higher for SPY than it is for the CCPI strategy. But the difference is smaller for shorter investment periods (10.3% for SPY versus 9.4% for CPPI in one-year investmentperiods; 7.3% for SPY versus 5.2% for CPPI in ten-year investment periods).

In one-year investment periods, for SPY we have periods in which returns are lower than the floor we set for CPPI (in this case 80% of the start value). We don’t see this anymore in three-year investment periods.

For investment periods of all lengths, maximum drawdown can be bigger for SPY than for the CPPI strategy. In the longest investment periods we have a clear seperation between the volatility- and max-drawdown- distributions of SPY and CPPI. But as long as an investor stays invested this long, these bigger drawdowns are not as important as they are in smaller investment periods, since the annualized returns are always higher for SPY than they are for CPPI in these long periods.

We can conclude that CPPI is best for short investment periods. In these short investment periods returns are comparable with the returns of SPY, while downside risk is limited. For longer periods, although maximum drawdown is lower for CPPI, this is not a good measure for the downside risk since the annualized returns are never better for CPPI than for SPY in these long investment periods.

And Next?

In our next section we will design a CPPI strategy for beginning investors.

CPPI: Start To Invest.