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Another Another Volatility Trading Strategy

Hi people,

Simple volatility trading strategy employing the following rules
1. volatility risk premium (VRP) = implied volatility (VIX) - historical volatility
2. Forecast next day volatility using GARCH
3. volatility up (volUp) = GARCH (t+1) - VIX(t)
4. VRP < 0 and volUp > 0 -> buy VXX
5. VRP >0 and volUp buy XIV (harvest the velocity risk premium)

2015 and 2016 period, the return is relatively flat.
Any comment is welcome

Clone Algorithm
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Backtest from to with initial capital
Total Returns
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Alpha
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Beta
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Sharpe
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Sortino
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Max Drawdown
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Benchmark Returns
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Volatility
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Returns 1 Month 3 Month 6 Month 12 Month
Alpha 1 Month 3 Month 6 Month 12 Month
Beta 1 Month 3 Month 6 Month 12 Month
Sharpe 1 Month 3 Month 6 Month 12 Month
Sortino 1 Month 3 Month 6 Month 12 Month
Volatility 1 Month 3 Month 6 Month 12 Month
Max Drawdown 1 Month 3 Month 6 Month 12 Month
# Backtest ID: 595377c951b95e54c8517dfd
There was a runtime error.
4 responses

Omega is zero all the time is that as planned?

Hi Peter,

Yes, you can say that it's planned.
The omega is a parameter for GARCH model estimated using the MLE

If the optimization says it's zero, then it should be zero

Hey, Is there any way through which I can reduce volatility of the generated returns?

@Hemant

Below is tear-sheet of the same strategy using less volatile instruments SPY and IEF.

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