2013 Performance Report - Part 2

In my previous post I covered the year-end performance of the "WRY-10SMA" strategy, which is designed for the more active trader, typically requiring roughly 2-3 dozen trades per year. Today I'll go over the performance of our "Bias" strategies for both VXX and ZIV, as given by our Daily Forecasts.

1) ZIV Bias
We start with ZIV, which couldn't be any more straight forward. Our forecasted Bias for ZIV has been positive since Nov 21, 2011, which was the buy signal.

ZIV performance in 2013: +63% 

2) VXX Bias
The VXX Bias is a bit more dynamic than ZIV Bias, but is still designed for investors who prefer to make trades less frequently. Because some traders prefer to only invest in inverse volatility (XIV) while staying away from long volatility (VXX), I will once again evaluate the performance of this strategy as two halves: the "Negative VXX Bias" in which you short VXX (or buy XIV), and the "Positive VXX Bias" in which you buy VXX.

2a) Negative VXX Bias
The biggest advantage of using the Negative VXX Bias strategy is that it allows traders to take advantage of the bias in XIV when it is available and keeps you out of the trade when the bias is against you. This is most clearly illustrated in the performance going back to 2009 (2009-2013 performance data located here).

Cumulative Return Jan 30, 2009 - Dec 31, 2013
XIV: +1,636%
"Negative VXX Bias": +2,383%

*Note: Results assume that gains are reinvested; prior to inception of XIV the inverse daily return of VXX is used to calculate the daily closing price of XIV.

While this strategy is prone to larger drawdowns than the "WRY<10SMA" strategy, the long term results have made it worthwhile (WRY<10SMA returned 1870% over this same 5 year timeframe).

However, in 2013 the Negative VXX Bias strategy had less remarkable results. "Taper talk" and Congressional games of debt ceiling chicken took our Bias readings briefly to the edge of the positive side and gave the signal to close out positions at rather unfortunate times. Results below (2013 performance data available here).

Cumulative Return Jan 1, 2013 - Dec 31, 2013

XIV: +107% 

"Negative VXX Bias": +53%

"Negative VXX Bias" Trade Summary, 2013

• # of Gains: 5
• # of Losses: 2
• Avg Return: +7.3%
• Max Gain: +24.2%
• Max Loss: -21.2%

Trade histogram of gains & losses for "Negative VXX Bias" in 2013:

2b) Positive VXX Bias

We saw a handful of trades for the "Positive VXX Bias" strategy in 2013, however as mentioned in the previous section, these trades were brief and reversed quickly. You can probably see why many traders choose to just avoid buying VXX. 

Cumulative Return Jan 1, 2013 - Dec 31, 2013

XIV: +107% 

"Positive VXX Bias": -30%

"Positive VXX Bias" Trade Summary, 2013

• # of Gains: 0
• # of Losses: 6
• Avg Return: -9.2%
• Max Gain: -2.5%
• Max Loss: -20.3%

Trade histogram of gains & losses for "Positive VXX Bias" in 2013:

That wraps up the 2013 performance review. If you have any questions or comments feel free to comment below or talk to us directly via the Contact page. 


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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for XIV, VXX, and ZIV as an approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.

2013 Performance Recap - Part 1

Now that 2013 has drawn to a close it's time for a performance recap of the Trading Volatility trading strategies. I'll be covering performance in two posts:

1) "WRY - 10SMA" Strategy
2) "Bias" Strategy for VXX & ZIV

1) "WRY - 10SMA" Strategy
Last month I introduced a strategy to enter and exit trades based on whether the Weekly Roll Yield (WRY) for VXX is above or below its 10-day moving average. It uses the chart from the VIX Futures Data page, shown below, to buy XIV (the inverse of VXX) when the WRY is less than its 10SMA (blue line is below the thin purple line), and buy VXX when the WRY is greater than its 10SMA (blue line is above the thin purple line).

1A) First, let's look at the performance of the "WRY < 10SMA" trade back to the inception of VXX in 2009 (data available here).

Cumulative Return Jan 30, 2009 - Dec 31, 2013

XIV: +1,691% 

"WRY < 10SMA": +1,870%

*Note: Results assume that gains are reinvested; prior to inception of XIV the inverse daily return of VXX is used to calculate the daily closing price of XIV. 

Focusing now on performance in 2013, you can see from the chart below that the "WRY < 10SMA" strategy under-performed a bit in a choppy market. One of the benefits of this strategy is that it helps to reduce drawdowns experienced by XIV and protect the portfolio in case the market sees a larger selloff, but it can come at the cost of missing out on "rebound gains" in an event-driven market. Hypothetical performance data available here.

  

Cumulative Return Jan 1, 2013 - Dec 31, 2013

XIV: +107% 

"WRY < 10SMA": +86%

"WRY < 10SMA" Trade Summary, 2013

• # of Gains: 11
• # of Losses: 10
• Avg Return: +3.4%
• Max Gain: +27.3%
• Max Loss: -6.5%

Trade histogram of gains & losses for "WRY < 10SMA" in 2013:

1B) Next is the other half of the strategy, "WRY > 10SMA", in which VXX would be bought. As noted in my introductory post on this strategy, the gains obtained using this strategy in the early part of the trade are almost always gone by the time the WRY crosses back below the 10SMA. Because of this it makes sense to close trades early or skip this half of the trade altogether (hypothetical performance data available here).

"WRY > 10SMA" Trade Summary, 2013

• # of Gains: 6
• # of Losses: 13
• Avg Return: -2.2%
• Max Gain: +7.9%
• Max Loss: -11.5%

Trade histogram of gains & losses for "WRY > 10SMA" in 2013:

In my next post I'll cover the performance of the "Bias" strategies (from our Daily Forecasts) for both VXX and ZIV .


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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for XIV, VXX, and ZIV as an approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.