COMPOSITE MACRO ETF WEEKLY ANALYTICS (4/17/2016)

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COMPOSITE MACRO ETF WEEKLY ANALYTICS (4/17/2016)

NOTABLE OBSERVATIONS AND TRENDS:

  • The Precious Metals Miners composite (PMM) has been a top 3 performer in all timeframes. More research is needed to determine the catalyst if any exists. However the strength of the PMM composite performance indicates there is some long-term conviction behind the buying.
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BACKTESTING THE IMPLIED VOLATILITY STRATEGY WITH QUANTOPIAN (4/09/16)

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BACKTESTING THE IMPLIED VOLATILITY STRATEGY WITH QUANTOPIAN (4/09/16)

To see the origin of this series click here. 

To summarize, the strategy calculates a SKEW measure using ATM calls and OTM puts for a collection of ETF symbols. It then sorts the symbols into quintiles based on the SKEW factor.

Using daily close/close log return calculations for this strategy has shown exceptional performance as can be seen here. However, translating a successful daily strategy with no transaction costs and perfect trading fills into a robust strategy that can execute and perform well after incorporating the real structure of market trading is a difficult task. In some cases the strategy cannot survive this translation.

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A Dead Simple 2-Asset Portfolio that Crushes the S&P500 (Part 2)

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A Dead Simple 2-Asset Portfolio that Crushes the S&P500 (Part 2)

In Part 1, and Part 1.5 I introduced a simple 2-asset portfolio that substantially outperformed the SPY ETF since 2009. In Part 1 I examined the performance of an "inverse risk-parity" approach where the ETF with the largest volatility contribution to the portfolio was weighted more heavily. In Part 1.5 I examined the performance of the actual "risk-parity" approach, where the ETF with the smallest volatility contribution is weighted more heavily. In this post I will examine some of the conceptual foundations underlying the strategy.

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A Dead Simple 2-Asset Portfolio that Crushes the S&P500 (Part 1.5)

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A Dead Simple 2-Asset Portfolio that Crushes the S&P500 (Part 1.5)

In Part 1 of this series I shared a simple strategy which showed outsized performance relative to the SPY ETF since 2009. I made a small error in the implementation. The previous portfolio was not rebalanced according to a  risk-parity framework. It was actually the inverse. The strategy was rebalanced such that the ETF responsible for the highest percentage of the portfolio's volatility was weighted more heavily! Surprisingly this error did nothing to substantially alter the performance of the portfolio and in some ways was superior to the actual risk-parity approach. In this post I detail the performance of the actual risk-parity approach.

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USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (4/09/16)

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USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (4/09/16)

To see the origin of this series click here

In the paper that inspired this series "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?" the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio. The ETF's are selected from the following groups:

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