Realised Steady Vol

The Steady Vol strategy tries to keep your portfolio's returns stable while slowly accruing returns over the long term.

To that end I used the Vix to predict vol over the next month in order to adjust exposure up or down and stabilise short term returns.

Turns out realised vol based on the previous two week's returns is a better indicator (i.e. bumps the Sharpe up a little).

Ever feel like you need to spend more quality time on something to really get at the brass tacks?

Code for the Lazy Backtesting IDE is here.

Standardised 10 Year Sharpe is 1.09 using the Vix and 1.33 using realised vol over 25 years of history.

What's nice about the Vix flavour is that the 'Max Wait' to profitability is 6 years rather than 7.

I.e. after breaking out the returns into 6 year chunks, each period has positive returns (not so with 5 year chunks).

The really nice benefit of realised vol however is that we can test over 55 years of S&P 500 history.

Here you can see all the blowouts gracefully avoided over the years.

Which results in a standardised 10 year Sharpe of 2 (or 0.55 over 55 years). Not too shabby.