Implements the following strategy: Each day, hold XIV/SPXU (weighted for zero
beta) if contango > xiv.spxu.cutpoint, hold VXX/UPRO (weighted for
zero beta) if contango < vxx.upro.cutpoint, and hold cash otherwise.
Perhaps not very useful since XIV closed on Feb. 20, 2018.
contango_hedged(contango, xiv.spxu.gains = NULL, vxx.upro.gains = NULL,
xiv.spxu.cutpoint = 6.36, vxx.upro.cutpoint = 5.45,
xiv.allocation = 0.46, vxx.allocation = 0.46, xiv.beta = NULL,
vxx.beta = NULL, initial = 10000)Numeric vector of contango values at the end of each trading day.
2-column numeric matrix with gains for XIV and SPXU.
Should have the same number of rows as contango and be date-shifted
one value to the right. For example, the first row should have the XIV and
SPXU gains for the day AFTER the first contango value.
2-column numeric matrix with gains for VXX and UPRO.
Should have the same number of rows as contango and be date-shifted
one value to the right. For example, the first row should have the VXX and
UPRO gains for the day AFTER the first contango value.
Numeric value giving the contango cutpoint for
XIV/SPXU position. For example, if xiv.spxu.cutpoint = 5, XIV/SPXU
will be held whenever contango is greater than 5%.
Numeric value giving the contango cutpoint for
VXX/UPRO position. For example, if vxx.upro.cutpoint = -5, VXX/UPRO
will be held whenever contango is less than -5%.
Numeric value specifying XIV allocation for XIV/SPXU
position. For example, if set to 0.46, 46% is allocated to XIV and 54% to
SPXU when contango > xiv.spxu.cutpoint.
Numeric value specifying VXX allocation for VXX/UPRO
position. For example, if set to 0.46, 46% is allocated to VXX and 54% to
UPRO when contango < vxx.upro.cutpoint.
Numeric value specifying XIV's beta. If specified, the
function figures out what xiv.allocation needs to be for zero-beta
XIV/SPXU positions. For example, if set to 3.5, then 46.2% XIV/53.8% SPXU
achieves zero beta.
Numeric value indicating VXX's beta. If specified, the
function figures out what vxx.allocation needs to be for zero-beta
VXX/UPRO positions. For example, if set to -3.5, then 46.2% VXX/53.8% UPRO
achieves zero beta.
Numeric value giving the initial value of the portfolio.
List containing:
Character vector named holdings indicating what fund was held
each day (XIV/SPXU, VXX/UPRO, or cash).
Numeric vector named port.gains giving the portfolio gain for
each day, which will be 0 for days that cash was held and the weighted
XIV/SPXU or VXX/UPRO gain for days that one of those positions was held.
Numeric vector named port.balances giving the portfolio balance
each day.
Numeric value named trades giving the total number of trades
executed.
You can find historical contango values from The Intelligent Investor Blog. You can click the first link at http://investing.kuchita.com/2012/06/28/xiv-data-and-pricing-model-since-vix-futures-available-2004/ to download a zip file containing an Excel spreadsheet. Then, you will need to calculate whatever version of "contango" you prefer. I typically define contango as what percent higher the second-month VIX futures are acompared to the first-month futures, i.e. dividing the "2nd mth" column by the "1st mth" column, subtracting 1, and then multiplying by 100.
To load daily gains for XIV, SPXU, VXX, and UPRO, you can use
load_gains, which uses the quantmod package to load
data from Yahoo! Finance. You will have to specify the from and
to inputs to match the date range for your contango values.
Ryan, J.A. and Ulrich, J.M. (2017) quantmod: Quantitative Financial Modelling Framework. R package version 0.4-12, https://CRAN.R-project.org/package=quantmod.