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relationship between VXX & XIV?

What is the relationship between:

VXX, iPath S&P 500 VIX Short-Term Futures ETN
XIV, VelocityShares Daily Inverse VIX Short-Term ETN

Naively, I'd think that an equal-weight portfolio should return zilch, but instead the return is highly negative.

If I run the attached algo on:

SPY, SPDR S&P 500 ETF
SH, ProShares Short S&P500

I get something much closer to zilch return over the same time period.

Is there something different about the VXX-XIV pair, compared to SPY-SH?

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: 58c52276b71a6f13537fc3ce
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3 responses

Grant,

I am not extirely sure but I think this may be explained in the article on volatility trading that I sent you.

Regards,

Tim

Hi Grant, Tim,

This may help in visualizing the relationship: xiv vs vxx historical performance chart

Hi Serge,

Very interesting, many thanks!

Any easy way of exploting these (co)rrelations between the three ETFs ? -:)