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Empiritage's Volatility-Based Asset Allocation

Reference: http://empiritrage.com/wp-content/uploads/2012/11/VBA_public_v01.pdf

Short backtest due to the fact that I had to use VXX to proxy VIX, which is not ideal because both it's too short as well as the persistent negative bias of the VIX ETNs due to negative roll yield. Still, interesting idea.

Clone Algorithm
79
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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
--
Sortino
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Max Drawdown
--
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: 51044afae70e2b0193c4df9b
This backtest was created using an older version of the backtester. Please re-run this backtest to see results using the latest backtester. Learn more about the recent changes.
There was a runtime error.
5 responses

I fixed a bug where it wasn't exiting positions when risk-off hit, and also added "risk-off" assets like TLT treasury ETF and IAU gold ETF. This seems like a good start to a simple, robust asset allocation strategy.

Clone Algorithm
79
Loading...
Backtest from to with initial capital
Total Returns
--
Alpha
--
Beta
--
Sharpe
--
Sortino
--
Max Drawdown
--
Benchmark Returns
--
Volatility
--
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: 510492be81d2c0539f1b572d
This backtest was created using an older version of the backtester. Please re-run this backtest to see results using the latest backtester. Learn more about the recent changes.
There was a runtime error.

Hah, fixing the same bug to exit risk-off positions when risk-on hits dramatically worsens the performance!

Hello Simon,

The topic of incorporating external data sources has been discussed on Quantopian (e.g. see https://www.quantopian.com/posts/different-kinds-of-data-sources). Until more sophisticated tools become available, I suggested a brute-force copy-and-paste approach of the external data into the algorithm editor. I have not tried this yet, but I was advised that each algorithm can be up to 16 MB. So, unless there is lots of overhead, the technique should work for your algorithm above.

The daily VIX history can be downloaded from Yahoo finance (see http://finance.yahoo.com/q/hp?s=^VIX+Historical+Prices). Then, it's a matter of sorting out how to get it into a format that would be suitable for pasting into the algorithm. My inclination is to just put the data in a numpy array, but there is probably a better approach (I'll post a question).

Once we sort out the details, you should be able to re-run your algorithm with the actual, daily VIX data...I think.

Grant

I don't know much about VIX and its ETNs, but something that may be worth considering is trying to predict VIX from the ETNs VXX and VXZ. If it's fairly accurate, that would be relatively straightforward to put into Quantopian. Much better than copy-paste IMHO