Volatility is anticorrelated with the stock market index meaning that when market goes down, volatility shoots up and vice versa. A stationary portfolio is formed by buying the VX front month volatility future and buying the ES E-mini S&P 500 futures front-month stock index future. A bollinger band mean reverting strategy has consistent profitability.
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Investment Performance
Investment Return (?):
12.5%
Volatility (?):
8.9%
Sharpe Ratio:
1.4
Maximum Drawdown:
-7.5%
Investment’s Fundamental Concept:
Volatility is anticorrelated with the stock market index meaning that when market goes down, volatility shoots up and vice versa. A stationary portfolio is formed by buying the volatility future and buying the Stock index future. A bollinger band mean reverting strategy has consistent profitability.
Investment’s Logic:
Volatility is anticorrelated with the stock market index meaning that when market goes down, volatility shoots up and vice versa. A stationary portfolio is formed by buying the VX front month volatility future and buying the ES E-mini S&P 500 futures front-month stock index future. A bollinger band mean reverting strategy has consistent profitability.
Since both futures prices of VX and ES have different units first both prices are multiplied by quotient to standardize and then linear regression program is run to determine the hedge ratio.
A bollinger band is constructed shorting the portfolio whenever value deviated from 1 standard deviation.
Other Investment Strategy Characteristics:
Investment Type:
Statistical Arbitrage
Investment Risk:
1/5 Very Low
Backtest Range:
30-40 years
Rebalancing period:
Daily
Investment Strategy Markets:
Equity Futures
Volatility Futures
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