Thursday, June 18, 2015

Building a rough proxy to VIX using volatility ETFs

Recently I played a lot with a portfolio built from volatility-normalized SPY (S&P 500 ETF), VXX (1-month VIX ETF) and VXZ (3-month VIX ETF), which shows pretty strong cyclical behaviour. First I've tried to compare it with S&P500 regimes, but haven't found anything obvious. Then I've checked VIX (volatility index) chart and was surprised with a resemblance. Of course it's not 100% the same, but volatility regimes correspond very good: volatility rises - portfolio growths, volatility falls - portfolio goes down.


So this portfolio can be used as a rough proxy to VIX.

The portfolio consists of 2 parts of SPY, 1 parts of VXX and 1 part of VXZ, where each ETF is normalized to its historical one-month volatility. The portfolio is corrected daily, Transaction expenses are not included here.

No comments:

Post a Comment