XIV monthly follow-through – Part 4
Back in September of 2012, I ran a series of posts on profiting from XIV monthly follow through. I showed how such a strategy did very well historically.
Well, it turns out my timing for these posts could not have been worse. Perhaps they marked the top of such a strategy?
Consider the chart below showing both monthly follow through and monthly mean reversion for XIV using both simulated values from the futures and actual values once brought into existence. (Note: defining monthly follow through as holding XIV through the current month if it rose the prior month and mean reversion as holding XIV through the month if it declined the prior month). The chart runs from 2004 to September, 2012. As you can see, the monthly follow through strat dominated.
What happened after I published my series of posts? Check out the chart below which shows performance between September, 2012 and the end of 2013. The tables turned and monthly follow through took a hit while monthly mean reversion prospered nicely. XIV decided to be less trendy and more choppy.
What’s also interesting is that September, 2012 marked the beginning of a period when not only monthly mean reversion did well but daily mean reversion did well, too. I documented that in this post.
Monthly follow through hasn’t looked bad since last September. Maybe the relative under-performance was just a phase.