This momentum strategy is also taken from an article by Double Digits Number.
The idea is quite simple – go long on the best-performing volatility ETF from a selection. Choose the ETF with the maximum positive return over 4 months.
In the original article XIV, VXX, ZIV, and VXZ were used.
However, XIV and ZIV are no longer exist. Instead of ZIV (an ETF on medium-term volatility), use VIXM, and instead of XIV – short VXX.
Strategy Rules
Check VXX, VXZ, VIXM. Calculate each return over 4 months and the negative return of VXX. Buy the instrument with the maximum return. Additional condition: return > 0. If the best is negative VXX return – short VXX.
Strategy Performance
Test period: 2010 – 15 Dec 2023. Costs (brokerage commissions, slippage and borrow costs) are not included.
| Averaged Strategy | Benchmark: Short VXX | Benchmark: SPY | |
| Full Return | 799% | 5 850% | 549% |
| Annualized return | 16% | 34% | 12.95% |
| Max DD | -89% | -92% | -34% |
| Sharpe ratio | 0.26 | 0.42 | 0.70 |
