VO > Back Testing Results (version 03/2015)

Below are given back testing results of VO, generated by the back testing software. These results should be considered as extrapolation into the past of this strategy, which started live trading on April 1, 2015. Performance fees (20% of new net profit above high water mark) are not deducted from back testing results. To see actual trading results, please go to the Real Trading page.

Back testing results (of the latest, currently traded strategy) do not take into account bid/ask spreads, the interest on short sale proceeds and negative interest on hard-to-borrow equity. Actual annualized rates of return (before performance fees) should be around 94% of theoretical returns.

VO Features:

- Based on 74 months of back testing history, the strategy looks very promising. The variability of returns is relatively low and the Sharpe Ratio is excellent. The strategy is extremely robust i.e. relatively insensitive to parameter changes (it is not a curve fitted, or over optimized system), which usually anticipates excellent performance in forward trading, following the back testing period.

- Transaction costs and negative interest (on hard-to-borrow equity) are very low (only 1% of net asset value per annum), relative to average annualized rate of return (around 15% per annum). Since bid/ask spread costs and interest are around 1/15 of the theoretical return, actual rates of return should be around 94% of theoretical returns.

- The strategy trades liquid instruments (VXX ETNs) and has large capacity. By gradually accumulating positions during the trading day the strategy can trade accounts of virtually any size without performance degradation.

- The strategy is not much affected by price slippage, as it trades liquid trading instruments and makes relatively small position adjustments during the trading day. Hence, the actual trading results are very close to hypothetical results. See "Transaction costs" above.

- V4 has relatively shallow drawdowns and, due to the excellent profitability, back testing says the strategy recovers faster than it loses.

VO - HYPOTHETICAL PERFORMANCE REPORT FROM STRATEGY BACK TESTING

1. Monthly Rates of Return (ROR), Before Performance Fees

    

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Total

VAMI

2009

- 0.59% 0.00% 0.00% 0.00% 0.26% 1.26% (0.59%) 1.37% (0.40%) 2.06% 3.43% 8.20% 1,082.0

2010

1.38% 2.99% 5.32% (0.41%) (4.47%) (0.51%) 1.55% (1.47%) 3.68% 6.23% 1.13% 6.22% 23.22% 1,333.2

2011

3.66% 1.44% (0.98%) 4.94% 2.16% (0.04%) (2.59%) (4.68%) 0.00% (1.48%) (0.41%) 1.20% 2.87% 1,371.5

2012

6.32% 1.68% 7.39% 0.47% (6.79%) 5.02% 2.71% 4.07% 5.77% (0.74%) 4.71% (1.78%) 31.78% 1,807.3

2013

5.02% 0.60% 2.99% 2.00% (0.23%) (1.72%) 5.63% (2.37%) 2.91% 2.80% 1.94% 1.33% 22.64% 2,216.5

2014

(3.19%) 2.50% 1.16% 0.96% 2.52% 2.03% (1.06%) 1.80% (1.53%) (0.04%) 1.60% (3.65%) 2.88% 2,366.8

2015

(4.08%) 6.19% 1.56% Start of live trading - see the VO Real Performance page.

2. Performance Statistics (Before Performance Fees)

Strategy Returns (Before Performance Fees)

Testing period (74 months)

Mar/2009 - Mar/2015

Net profit on fixed capital without/with monthly profit reinvesting

89.34% / 135.9%

Sum of positive/ negative monthly rates of return - ROR (gross gain / gross loss)

134.8% /

(45.12%)

Compound average annualized ROR

14.93%

VAMI - Growth of $1,000, compounded monthly (fees not deducted)

2,359.0

Monthly Profit Factor (Profit to Loss Ratio); (sum of positive RORs) to (sum of negative RORs)

2.98

# Profitable months / average positive ROR

46 / 2.93%

# Losing months / average negative ROR

24 / (1.88%)

Kurtosis of monthly RORs

0.07

Skewness of monthly RORs

(0.13)

% Profitable months

65.7%

Ratio avg. positive / avg. negative monthly ROR (Gain to Loss Ratio)

1.55

Max. # of consecutive profitable / losing months

6 / 3

Maximum / minimum monthly ROR

7.39% / (6.79%)

Maximum / minimum daily ROR

2.96% / (3.85%)

Maximum / minimum 5-day rolling ROR

5.97% / (7.17%)

Risk Measures

Annualized standard deviation of monthly RORs

10.00%

Annualized downside deviation (MAR = RF return of 3% per annum)

6.11%

Sharpe Ratio, annualized (RF rate of return 3.0%)

1.39

Sortino Ratio, annualized (below RF ret. 3%)

2.28

Calmar Ratio (ratio compound average annual ROR to worst intra month drawdown)

1.67

Omega Ratios

N/A

Tracking error, relative to the S&P 500 Index, annualized

12.12%

Historic 5-day Value at Risk (VaR); (for 95% and 99% confidence levels)

 (2.42%) / (4.28%)

Alpha relative to the S&P 500 Index, annualized

8.32%

Beta coefficient, relative to the S&P 500 Index

0.39

Jensen's Alpha relative to the S&P 500 Index, annualized

8.13%

Active premium, relative to the S&P 500 Index, annualized

(1.12%)

Information Ratio, relative to the S&P 500 Index

(0.12)

Worst month-to-month drawdown depth / duration

(8.93%) / Jun/11-Apr/2012

Worst peak-to-valley (intra month) drawdown

(9.89%)

Longest recovery period

170 days

 

Basic Strategy Characteristics
Strategy name

VO

Type of trading S&P 500 Vol. Index trading
Portfolio composition

VXX ETNs

Margin to equity ratio Max 13%
Maximum strategy leverage 0.25
How generated

Back testing - hypothetical

Start of live trading in the Managed Account Program: April 1, 2015

Turnover / Cost Parameters

Average position value, relative to NAV

25%

Average daily portfolio turnover (daily traded positions value as a percentage of NAV)

0.7%

Annual turnover ratio

1.85

Average annual transaction costs - bid/ask spreads and commissions (deduct from annual ROR)

1% of NAV per annum

Average transaction bid/ask spread and commission cost, as a fraction of the transaction value

0.1%

 

3. Performance Graphs and Histograms

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The above tables and charts document VO's historical hypothetical performance based on back testing results. To see actual trading results, please go to the VO Real Performance page.

Please note that performance results reported are before performance fees, which decrease returns.

Better results (smaller drawdown and better Sharpe and Sortino Ratio) can be obtained by trading the VO Program in combination with the VT - Volatility Trading Program and/or currency trading programs (FXI, FXQ, FXB).

Hypothetical Performance Disclaimer:

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PLATFORMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.

Risk Disclaimer

THE RISK OF LOSS IN TRADING EQUITIES AND ETNS CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION AND INVESTMENT OBJECTIVES. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE PERFORMANCE QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER. TRADING EQUITIES IS SPECULATIVE AND MAY INVOLVE THE LOSS OF PRINCIPAL; THEREFORE, FUNDS PLACED UNDER MANAGEMENT SHOULD BE RISK CAPITAL FUNDS THAT IF LOST WILL NOT SIGNIFICANTLY AFFECT ONE'S PERSONAL WELL BEING. THIS IS NOT A SOLICITATION TO INVEST AND YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTION. PLEASE SEE THE COMPLETE RISK DISCLOSURE.