Playing the Short Side on SPX
I’m revisiting my full portfolio algorithm again in back-testing, but this time with the adjustment of using the normalized ratio for shorting volatility rather than the simple Spot VIX over the Front Month future settlement. It improves the algorithm quite a bit by reducing both the Max Drawdown as well as the Beta of the portfolio.
I’m working again on having this set up to be live-traded so that when I’m unable to actively manage my portfolio, Quantopian can kick in so that I don’t miss out on too much market movement. The algorithm is as such:
- 40% weight in SPY. Long SPY when SMA(25) > SMA(220) and move to SHY otherwise.
- 35% weight in TLT. Long TLT when SMA(35) > SMA(70) and move to SHY otherwise.
- 25% Weight in XIV. Long XIV when Normalized Contango Ratio < 0.95 and move to SHY otherwise.
The following back test results are from 01/01/2007 to 02/08/2017.
|
|
| Stress Events | Mean | Min | Max |
|---|---|---|---|
| Lehmann | 0.0005 | -0.0127 | 0.0135 |
| US downgrade/European Debt Crisis | 0.0011 | -0.0169 | 0.0198 |
| Fukushima | 0.002 | -0.0082 | 0.0144 |
| EZB IR Event | 0.0001 | -0.0235 | 0.027 |
| August 2007 | 0.0007 | -0.0121 | 0.0104 |
| March 2008 | -0.0001 | -0.0056 | 0.0069 |
| September 2008 | 0.0005 | -0.0127 | 0.0135 |
| 2009Q1 | -0.0012 | -0.0116 | 0.0111 |
| 2009Q2 | 0 | -0.0026 | 0.0039 |
| Flash Crash | -0.0033 | -0.0164 | 0.0149 |
| April 2014 | 0 | -0.0189 | 0.0075 |
| October 2014 | 0.0006 | -0.0082 | 0.0062 |
| Fall 2015 | -0.0012 | -0.0145 | 0.0079 |
| Low Volatility Bull Market | 0.0001 | -0.0157 | 0.0086 |
| GFC Crash | 0.0002 | -0.0129 | 0.0169 |
| Recovery | 0.0008 | -0.0388 | 0.0311 |
| New Normal | 0.0008 | -0.0685 | 0.0261 |
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