Audacity and Market Downturns

If you want an investment that always goes up when the market goes down, it requires having an investment that always goes down when the market goes up. This is not what the Audacity Strategy does!

Low Correlation…NOT Negatively Correlated

Audacity has low correlation to the S&P 500. This means that the direction of the S&P 500 does not have a meaningful impact on the direction of Audacity’s performance. In other words, when the S&P 500 is down like it has been the past week and a half, Audacity could be down, could be up, or could be flat…they are generally disconnected but NOT inversely connected (negatively correlated).

This disconnected performance between Audacity and the S&P 500 has been demonstrated over and over throughout the research on the Strategy. This is highlighted in the table below during the last 10 years since the launch of our similar Flex Strategy.

S&P 500 Declines of -5% or More

This table includes every decline of the S&P 500 by -5% or more since early January 2010. The performance of Audacity is included as well along with the difference between the two in the far right column.

A positive in the Difference column occurs when Audacity has done better than the S&P 500. As this data clearly demonstrates, when the S&P 500 is down Audacity sometimes does better and other times does worse than the S&P 500. Remember these are all of the periods when the S&P 500 has declined by at least -5%.

Length of Time Makes a Difference

When investing, the longer the time period, the more likely it is that we get what we expect. For example, investors generally expect stocks to perform better than bonds. This is true over longer period of time but certainly not all shorter periods of time. The same is true with Audacity and our expectations.

In the table above I highlighted all of the periods when the S&P 500 declines occurred in 30 days or less…shorter periods of time. Of these six short declines, Audacity did better only once. In the eight other periods when the S&P 500’s decline persisted for more than 30 days, Audacity did better than the S&P 500 in all but one. Clearly the more time that passes, the more likely it is that Audacity helps mitigate some losses in down markets.

Performing Exactly as Expected

Every bit of evidence and research demonstrates Audacity is performing just as expected. If this market decline persists, I would expect Audacity to gain ground on the S&P 500 and help reduce losses in a diversified portfolio. Furthermore, I expect Audacity to continue outperforming the S&P 500 over longer periods of time, regardless if it is a bull market or bear market, just as it did throughout our extensive research spanning more than 5 decades.