Playing the Short Side on SPX
With the current US market climate trending towards a rising rate environment, I wanted to slightly tweak my algorithms to move to SHY rather than just straight cash. Although there is very little impact on overall performance, it does improve returns for the Full Portfolio strategy. It actually lowers the performance of just straight shorting VXX, which is attributed to a lower compounding of the short VXX returns. Rising rates would actually be beneficial to short term fixed income instruments as they continuously roll near-term treasuries with higher payments and if that’s the case, reallocating any excess cash to SHY may prove to be beneficial for the future.
Below I’ve posted brief summaries of my backtests on both my Full Portfolio strategy and my Short VXX strategy:
Full Portfolio: 01/01/2007 – 10/11/2016
No Reallocation of Excess Cash
Reallocating Excess Cash to SHY
Shorting VXX: 02/01/2009 – 10/11/2016
No Reallocation of Excess Cash
Reallocating Excess Cash to SHY
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