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EurOil Index, Trading-by-Rotation and TbR logos © 2007/2008 Dimitrios D. Thomakos

 

Historical Performance, Friday data

An exercise in

Trading by Rotation

S&P500 & VIX

Historical Performance, Monday data

Created and maintained by

Dimitrios D. Thomakos, © 2008

Last updated: 06/27/2008 – Weeks running: 23

Trading updates available after Mon & Fri 

 

Figure on left updated on 06/27/2008

cumulative value of $1 over past 800 weeks, rolling window, rotation strategy, Friday data

Figure on right updated on 06/27/2008

cumulative value of $1 over past 800 weeks, rolling window, rotation strategy, Monday data

 

In case the webpage is not promptly updated due to server problems please check its mirror page at http://metronfinance.awardspace.com/rotation_sp500.html

 

Real Time TbR Strategy Performance

(as cumulative value of $1)

From 01/21/2008 (Monday) is:

 1.3291

From 01/25/2008 (Friday) is:

1.7565

Real Time Performance

of S&P500 and the VIX

(as cumulative value of $1)

S&P500

0.9282 (Monday), 1.0218 (Friday)

VIX

0.9888 (Monday), 0.8619 (Friday)

Sign Success Ratio (as %)

Monday model:

60.87%

Friday model:

65.22%

Current recommendation

(using data from previous week)

For Monday 06/30/2008 is:

S&P500 (1)

For Friday 07/04/2008 is:

S&P500 (2)

                                                         (1) Uniform recommendation across evaluation periods

                                                         (2) Uniform recommendation across evaluation periods

 

 

Friday model

Monday model

Real Time

Summary Statistics

TbR

S&P500

VIX

TbR

S&P500

VIX

Weekly average return (as %)

3.29

0.09

-0.60

1.43

-0.31

-0.05

Weekly std. deviation (as %)

8.71

2.75

12.43

5.74

3.15

12.27

Weekly Sharpe ratio

0.38

0.03

-0.05

0.25

-0.10

0.00

Maximum realized gain (as %)

17.14

4.75

17.14

14.37

5.58

30.32

Maximum realized loss (as %)

-13.56

-4.70

-18.12

-7.76

-7.76

-22.55

 

Visit another Trading-by-Rotation webpage: Predictions and TbR for Oil and the Euro

 

Visit my blog: http://predict-and-trade.blogspot.com/

 

Click below to link on this webpage:

Latest News, Summary of Trading Recommendations,

Introduction, Data, Methodology, Simulated Trading and Performance

 

*   Latest news

06/27/2008 – Both models are continuing well although the rotation to the S&P500 has not yet realized. The past predictions to stay with VIX were realized and the cumulative return climbed further up on both models…

 

See past postings...

 

*   Summary of Trading Recommendations

Based on data of the previous week

Recommended asset, Monday data, for 06/30/2008:                    S&P500                    (Note: uniform recommendation across evaluation periods)

Recommended asset, Friday data, for 07/04/2008:                       S&P500                   (Note: uniform recommendation across evaluation periods)

 

*   Introduction

Welcome to the TbR S&P500 and VIX webpage! I continue, with another class of assets, the research effort on rotation-based trading strategies that I implemented and maintain in the EurOil Index and the TbR webpages. Here I use the S&P500 equity index and the VIX index of its implied volatility. Very illuminating discussions with Dr. Achilleas Venetoulias (who I would like to thank without implicating) and Dr. Yianos Kontopoulos, the existing literature and pure curiosity lead me to experiment with rotation between an asset and its underlying volatility and, it turns out, the strategy works quite well! See more in the discussion on performance below.

 

*   Data

I am using data from publicly available, internet-based sources. Weekly (Monday and Friday) data for both the S&P500 and VIX are available online from Yahoo! Finance. The data start on January 1990 (VIX availability).

 

*   Methodology

The trading methodology I am using here is based on some of my past research. I use a modification of the methods presented in the paper “Market Timing and Cap Rotation”, by D. Thomakos, T. Wang and J. Wu, Mathematical and Computer Modeling (2007), vol. 46, pp. 278-291 (available on http://www.sciencedirect.com), to construct a trading strategy that rotates between the two assets based on their predicted signs. The methodology can be seen as a generalized ‘sign forecasting’ approach although it is probably more informative than simple pairwise sign forecasting. The strategy gives long-only signals and does not take into account transactions costs so the results presented should be interpreted accordingly.

 

A rotation-based strategy will heavily depend on the choice of assets used in the rotation. For example, the weekly drawdown will always equal the minimum return among the two assets, if that particular asset is (wrongly) selected. Therefore the strategy’s success depends on whether it can correctly predict the relative sign of the assets most of the time and note that we do not need to be completely accurate all the time. This is illustrated in the historical evaluation that I present in the next section.

 

*   Simulated Trading and Performance

Cumulative returns

Trading recommendation

for Monday

(based on data a week before)

Asset

Realized Return %

S&P500

Realized Return %

VIX

Sign Success Ratio

Cumulative Sign Success Ratio (in %)

Cumulative

Value of $1

01/21/2008

S&P500

-7.76

30.32

-

0.00

0.9223

01/28/2008

S&P500

3.26

-11.00

+

50.00

0.9549

02/04/2008

VIX

1.96

-6.66

-

33.33

0.8883

02/11/2008

VIX

-3.06

6.01

+

50.00

0.9484

02/18/2008

S&P500

0.72

-7.56

+

60.00

0.9556

02/25/2008

S&P500

1.69

-10.54

+

66.66

0.9725

03/03/2008

VIX

-2.99

13.20

+

71.43

1.1045

03/10/2008

S&P500

-4.45

11.15

-

62.50

1.0599

03/17/2008

S&P500

0.25

9.29

-

55.55

1.0624

03/24/2008

S&P500

5.58

-22.55

+

60.00

1.1182

03/31/2008

VIX

-2.03

-0.47

+

63.63

1.1135

04/07/2008

S&P500

3.70

-13.30

+

66.66

1.1505

04/14/2008

VIX

-3.27

6.06

+

69.23

1.2111

04/21/2008

S&P500

4.41

-15.01

+

71.43

1.2552

04/28/2008

VIX

0.59

-4.28

-

66.66

1.2123

05/05/2008

VIX

0.79

-3.84

-

62.50

1.1739

05/12/2008

S&P500

-0.28

-6.05

+

64.71

1.1711

05/19/2008

VIX

1.63

-4.48

-

61.11

1.1262

05/26/2008*

VIX

-2.93

14.37

+

63.16

1.2699

06/02/2008

S&P500

0.02

0.96

-

60.00

1.2701

06/09/2008

S&P500

-1.74

15.35

-

57.14

1.2527

06/16/2008

S&P500

-0.12

-9.85

+

59.09

1.2515

06/23/2008

VIX

-3.15

7.76

+

60.87

1.3291

06/30/2008

S&P500

 

 

 

 

 

[1.] The realized return for each asset is the weekly return (from Monday to Monday) from the week before to the week of the trade – return measured as difference in log prices.

*Data for Tuesday the 27th – the markets were closed on the 26th.

 

Trading recommendation

for Friday

(based on data a week before)

Asset

Realized Return %

S&P500

Realized Return %

VIX

Sign Success Ratio

Cumulative Sign Success Ratio (in %)

Cumulative

Value of $1

01/25/2008

VIX

0.4081

6.76

+

100.00

1.0676

02/01/2008

S&P500

4.75

-18.12

+

100.00

1.1151

02/08/2008

VIX

-4.70

15.19

+

100.00

1.2670

02/15/2008

S&P500

1.39

-11.11

+

100.00

1.2809

02/22/2008*

VIX

0.23

-3.91

-

80.00

1.2418

02/29/2008

VIX

-1.67

9.81

+

83.33

1.3399

03/07/2008

S&P500

-2.84

3.51

-

71.43

1.3115

03/14/2008

S&P500

-0.40

12.53

-

62.50

1.3075

03/21/2008**

S&P500

3.16

-15.75

+

66.66

1.3391

03/28/2008

VIX

-1.08

-3.48

-

60.00

1.3043

04/04/2008

VIX

4.11

-13.56

-

54.54

1.1687

04/11/2008

VIX

-2.78

4.40

+

58.33

1.2127

04/18/2008

S&P500

4.22

-15.31

+

61.54

1.2549

04/25/2008

VIX

0.54

-2.72

-

57.14

1.2277

05/02/2008

VIX

1.14

-7.47

-

53.33

1.1530

05/09/2008

VIX

-1.83

6.55

+

56.25

1.2185

05/16/2008

S&P500

2.63

-16.42

+

58.82

1.2448

05/23/2008

VIX

-3.53

17.14

+

61.11

1.4162

05/30/2008

S&P500

1.76

-9.21

+

63.15

1.4338

06/06/2008

VIX

2.87

27.87

+

65.00

1.7125

06/13/2008

S&P500

-0.05

-10.46

+

66.66

1.7120

06/20/2008

VIX

-3.14

7.49

+

68.18

1.7870

06/27/2008

S&P500

-3.05

2.46

-

65.22

1.7565

07/04/2008

S&P500

 

 

 

 

 

[1.] The realized return for each asset is the weekly return (from Friday to Friday) from the week before to the week of the trade – return measured as difference in log prices.

* Click on the link to see what happened intraday on the 22nd and how the prediction went off by a last minute announcement

** Data for Thursday the 20th – the markets was closed on the 21st.

Discussion

The figures below summarize the trading performance of the proposed rotation-based strategy vs. the performance of the S&P500 index and VIX. I present the accumulated value of $1 invested at the beginning of different evaluation periods and the corresponding information.  The strategy clearly outperforms both indices for all evaluation horizons. The performance of the strategy is similar to the performance of the same rotation strategy in the EurOil Index project, only that here we have more data for evaluation and the cumulative values are much higher.

 

To gauge the frequency of correct (and incorrect) decision-making of the strategy I calculated the average number of times that the strategy picked the asset with the highest (lowest) return. Surprisingly, these averages did not change drastically with the length of the evaluation period, something that can be considered a sort of ‘robustness’ property of the strategy. The average number of correct decisions was about 56% (ranging from 53% to 58.5%). These numbers are higher than the corresponding ones in Oil and Euro trading and can possibly be attributed to the use of volatility in performing the rotation.

 

Figure 1 – Monday data (updated 06/27/2008)

 

Figure 2 – Friday data (updated 06/27/2008)

 

Figure 3 – Monday data (updated 06/27/2008)

 

Figure 4 – Intraday evolution of S&P500 (^GSPC, blue line) and VIX (^VIX, red line) on Friday 02/22/2008

 

Disclaimer: The contents of this webpage are provided for information purposes only. Prices shown in this webpage are indicative and the author is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. The views in this publication are those of the author alone and are subject to change at any time, and he has no obligation to update the opinions or the information in this webpage. The author of this webpage does not accept any liability whatsoever for any direct or consequential loss arising from any use of the information provided. The information in this webpage is not intended to predict actual results, which may differ substantially from those presented. The author is not affiliated with any of the companies used in the analysis that is presented in this webpage.