Fun with Leverage

An old post regarding a simple asset allocation model that beat the average performance of the top ten hedge funds of the past 15 years got me thinking. As an aside, the average performance will be highly biased upwards as we only know in hindsight what the top 10 hedge funds were. Thinking can be dangerous. So can leverage. In the previous Python post, I tested a simple RV timing tool in VXX and combined with TLT ETF as a proxy for bonds. When you combine the two, you can get something like this:

VXX Strategy Combined with Leveraged TLT ETF

VXX Strategy Combined with Leveraged TLT ETF

I randomly selected data from Jan 2010 to Jan 2011 to optimize the weightings. I constrained the VXX strategy to only 1x but tested as high as 3x on TLT. The 1.9 sharpe compares with 1.6 Sharpe of a 1x allocation to the VXX strategy. The last couple of months have been pretty rough on VXX strategies so here is a closer look from 2014:

Jan 2014 - March 10, 2015

Jan 2014 – March 10, 2015

BTW, all calculations include commissions!

Advertisements

~ by largecaptrader on March 11, 2015.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: