Category Archives for "ETFs"

November 16, 2016

Is synthetic XIV/VXX data safe to use?

I have done several posts about trading XIV & VXX. In these posts (here, here and here) I refer to using synthetic data before these ETFs started trading. I supported the use of the data due to the very high correlation of daily returns during the overlap period. With a correlation of .97, I thought great the data should be good to use for backtesting.

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October 26, 2016

VXX & XIV Strategies

My recent research has been on the volatility Exchange Traded Products. My focus has been on long trades using VXX and XIV. Although VXX has a very strong downtrend, I am not a fan of developing short strategies on it due to the huge upside risk.  I wrote about XIV here and expressed some of the dangers of trading these ETFs.

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July 22, 2015

Multiple Time Frames for Scoring ETF Rotational Strategies

Today we have a guest post from David Weilmuenster who I worked with while at Connors Research.

A widely applied technique for scoring assets in rotational systems is to rank those assets by their price momentum, or return, over a given historical window and to rotate into the assets with higher momentum. This approach seeks to capitalize on the well-demonstrated tendency for price momentum to persist. But, it begs some questions:

  1. “What is an appropriate historical period for measuring price momentum?” Clearly, the momentum of a given asset can rank quite differently compared to the tradable universe over 1 month, 3 months, or 6 months.
  2. “Is one historical period sufficient?” If relative momentum can vary widely depending on the historical window, would it be better to consider multiple slices of history?
  3. Is higher momentum always preferable to lower momentum, especially if the system rules filter the tradable universe before scoring the ETFs for rotation?

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May 6, 2015

How good is Smart Beta?

A popular topic lately has been “Smart beta” ETFs. What is smart beta? It is using different ways to weight an index and the ETF that tracks it. For example, the S&P500 index is a capitalization weighted index. Bigger companies have a larger portion of the index. If you look at the SPY, Apple which is the largest company, accounts for 4% of the index (https://www.spdrs.com/product/fund.seam?ticker=spy). Other ways one can weight an index are equal weight, by volatility, by fundamental measures, by technical measures and so on. Why would you do this? To beat the returns of the S&P500 index . But are these other ways better?

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April 15, 2015

Re-balancing: Is it worth the time and effort?

David Weilmuenster is today’s guest author. David and I worked together at Connors Research for eight years and is one great researcher and AmiBroker programmer.

Brochures for professionally managed investments and academic white papers on long term investing almost always praise the benefits of regularly re-balancing a portfolio. The benefits can arise from the interaction, or correlation, of periodic returns among the constituent assets in a portfolio. As the correlations among constituent assets decrease, the long term returns of the overall portfolio generally will increase with regular re-balancing. This has become known as “the only free lunch in investing”, although it does not work out that way in all situations.

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