Cash vs US Dollar Bull + Chinese Yuan Bull

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watchnerd
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Cash vs US Dollar Bull + Chinese Yuan Bull

Post by watchnerd »

UUP = US dollar bull ETF

CYB = Chinese yuan bull ETF

(which also invests in Chinese money market funds...more on that below).

These two should move opposite to each other, right?

Well, from this view, it sure looks like it:

Image


But CYB also says it invests in Chinese money market funds.

So if the combine UUP + CYB, do the currencies cancel out and we're left with just the yields of Chinese money market funds?

Which should be higher than USD money market funds?

2008 - present:

CASHX: 0.51% CAGR
50% UUP + 50% CYB: 1.14%

So maybe??

But not so fast...the currency combo is much more volatile and has a big draw down:

https://www.portfoliovisualizer.com/bac ... tion3_2=50


This is a bit of a head-scratcher for me and the only explanation I can come up with for the volatility of the currency combo is that the basket of currencies used by UUP doesn't map all that well to the Chinese yuan.

But open to other speculative theories or insights...
60% Global Market Stocks (VT,FM) | 15% Long Treasuries 15% short TIPS 10% cash || RSU + ESPP | LMP TIPS/STRIPS
dsasdg
Posts: 74
Joined: Sun Mar 21, 2021 4:24 am

Re: Cash vs US Dollar Bull + Chinese Yuan Bull

Post by dsasdg »

watchnerd wrote: Wed Apr 07, 2021 12:29 am UUP = US dollar bull ETF

CYB = Chinese yuan bull ETF

(which also invests in Chinese money market funds...more on that below).

These two should move opposite to each other, right?

Well, from this view, it sure looks like it:

Image


But CYB also says it invests in Chinese money market funds.

So if the combine UUP + CYB, do the currencies cancel out and we're left with just the yields of Chinese money market funds?

Which should be higher than USD money market funds?

2008 - present:

CASHX: 0.51% CAGR
50% UUP + 50% CYB: 1.14%

So maybe??

But not so fast...the currency combo is much more volatile and has a big draw down:

https://www.portfoliovisualizer.com/bac ... tion3_2=50


This is a bit of a head-scratcher for me and the only explanation I can come up with for the volatility of the currency combo is that the basket of currencies used by UUP doesn't map all that well to the Chinese yuan.

But open to other speculative theories or insights...
Max. Drawdown is 10%, it is very bad.
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watchnerd
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Re: Cash vs US Dollar Bull + Chinese Yuan Bull

Post by watchnerd »

dsasdg wrote: Wed Apr 07, 2021 12:57 pm
watchnerd wrote: Wed Apr 07, 2021 12:29 am UUP = US dollar bull ETF

CYB = Chinese yuan bull ETF

(which also invests in Chinese money market funds...more on that below).

These two should move opposite to each other, right?

Well, from this view, it sure looks like it:

Image


But CYB also says it invests in Chinese money market funds.

So if the combine UUP + CYB, do the currencies cancel out and we're left with just the yields of Chinese money market funds?

Which should be higher than USD money market funds?

2008 - present:

CASHX: 0.51% CAGR
50% UUP + 50% CYB: 1.14%

So maybe??

But not so fast...the currency combo is much more volatile and has a big draw down:

https://www.portfoliovisualizer.com/bac ... tion3_2=50


This is a bit of a head-scratcher for me and the only explanation I can come up with for the volatility of the currency combo is that the basket of currencies used by UUP doesn't map all that well to the Chinese yuan.

But open to other speculative theories or insights...
Max. Drawdown is 10%, it is very bad.
It can look pretty risky in isolation, for sure.

In a portfolio context, a 10% draw down on a 10% allocation = 1% draw down.
60% Global Market Stocks (VT,FM) | 15% Long Treasuries 15% short TIPS 10% cash || RSU + ESPP | LMP TIPS/STRIPS
dsasdg
Posts: 74
Joined: Sun Mar 21, 2021 4:24 am

Re: Cash vs US Dollar Bull + Chinese Yuan Bull

Post by dsasdg »

watchnerd wrote: Wed Apr 07, 2021 1:43 pm
dsasdg wrote: Wed Apr 07, 2021 12:57 pm
watchnerd wrote: Wed Apr 07, 2021 12:29 am UUP = US dollar bull ETF

CYB = Chinese yuan bull ETF

(which also invests in Chinese money market funds...more on that below).

These two should move opposite to each other, right?

Well, from this view, it sure looks like it:

Image


But CYB also says it invests in Chinese money market funds.

So if the combine UUP + CYB, do the currencies cancel out and we're left with just the yields of Chinese money market funds?

Which should be higher than USD money market funds?

2008 - present:

CASHX: 0.51% CAGR
50% UUP + 50% CYB: 1.14%

So maybe??

But not so fast...the currency combo is much more volatile and has a big draw down:

https://www.portfoliovisualizer.com/bac ... tion3_2=50


This is a bit of a head-scratcher for me and the only explanation I can come up with for the volatility of the currency combo is that the basket of currencies used by UUP doesn't map all that well to the Chinese yuan.

But open to other speculative theories or insights...
Max. Drawdown is 10%, it is very bad.
It can look pretty risky in isolation, for sure.

In a portfolio context, a 10% draw down on a 10% allocation = 1% draw down.
Its sharpe ratio is low. IEF is much better.
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watchnerd
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Re: Cash vs US Dollar Bull + Chinese Yuan Bull

Post by watchnerd »

dsasdg wrote: Wed Apr 07, 2021 2:02 pm

Its sharpe ratio is low. IEF is much better.
I already have 10 YR STRIPS/TIPS in my sig in the LMP ladder.

Adding more doesn't create additional diversification and I don't want to make my total bond duration even longer.

The point being to do something in fixed income / cash that isn't just more Treasuries.
60% Global Market Stocks (VT,FM) | 15% Long Treasuries 15% short TIPS 10% cash || RSU + ESPP | LMP TIPS/STRIPS
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watchnerd
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Re: Cash vs US Dollar Bull + Chinese Yuan Bull

Post by watchnerd »

Noodling on this a little further.

Risk parity analysis:

https://www.portfoliovisualizer.com/opt ... eight1=100

CYB: 65%
UUP: 35%

USDU has less back history than UUP, but it does have a lower ER, higher yield, and a slightly different basket of currencies.

Risk parity for that pairing:

CYB: 56%
USDU: 44%

https://www.portfoliovisualizer.com/opt ... eight1=100


And both of those versus cash:

https://www.portfoliovisualizer.com/bac ... tion4_3=44

Beat cash by >100 bps at the price of single digit max draw downs.
60% Global Market Stocks (VT,FM) | 15% Long Treasuries 15% short TIPS 10% cash || RSU + ESPP | LMP TIPS/STRIPS
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watchnerd
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Location: Seattle, WA, USA

Re: Cash vs US Dollar Bull + Chinese Yuan Bull

Post by watchnerd »

And in the context of a $1M risk portfolio, using my AA (in sig), we get:

https://www.portfoliovisualizer.com/bac ... ion6_2=4.4

10% Cash:
CAGR: 7.50%
Max Drawdown: -11.00%

10% CYB-USDU Parity Match:
CAGR: 7.61%
Max Drawdown: -10.86%
60% Global Market Stocks (VT,FM) | 15% Long Treasuries 15% short TIPS 10% cash || RSU + ESPP | LMP TIPS/STRIPS
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