Monday, December 27, 2010

S&P 500 VEQTOR Index

VEQTOR stands for Volatility EQuity Target Return. Noticed it while browsing through Standard & Poors strategy indices. After some digging, found a great article explaining how it works at Surly Trader.

The strategy gains its volatility overlay through the use of short-term VIX futures.

Basic idea here is to take a long position in VIX futures against equity holdings, rebalanced frequently with respect to expected future cross correlations. As a result, it theoretically offers a much smoother return and potentially make a net profit off volatility jumps like that of late 2008.

Performance of a Dynamic VEQTOR Strategy Allocation Algorithm against a naked long S&P500 position, (click on image to see the whole thing)

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