With year-end the financial press will be reporting the performance of various sectors and strategies. Following them, although a few days early, this post reports performance of my trade-SPY-at-noon strategy. First it reports performance during the last 6 years; Then at 6 volatility (VIX) levels.
The year-by-year performance could never have been predicted (So for stock selection I believe in the efficient market-hypothesis, see Post 1; For instance, the odds on the health-case industry beating energy - or any sector beating any other - in 2018 is 50%.) We’ll see again (as discussed in posts 3, 7 and 10) that noon- strategy returns depend on volatility. The beauty of this is that by looking at VIX level we can continuously estimate the strategy’s returns. With time this can't be done. No-one can estimate which sector will preform best next year.
The table shows 2017 Win Ratios were positive on 67.4% of the days. Net return was low at 2.8% because of low volatility. As in Post 10 yearly significance in the the Monte Carlo column (using only one-sixth of the full sample) almost passed the 5% threshold. The full six years have astounding significance.
And note the dual ability of VIX. It allows estimation of strategy returns and of strategy significance.
The table of six VIX quantiles shows these dual predictive abilities of VIX even more forcefully. On days when VIX has its three lowest levels the average daily return is .07% and Monte Carlo significance is weak. On the three highest level days average return is .25% with Monte Carlo always significant and below 1% twice. (The 15.7-18.3 level is a bit of an outlier but still significant at the 5% level.)
The charts below repeat the table to emphasize the correlation between VIX and return. In the yearly chart, rank order would be exact except that 2017 with lowest volatility is minimally higher than 2014 with the second lowest volatility. The pink band shows VIX between 10% and 90% of its range during each year.
The volatility chart displays the median of 6 VIX quantiles against average daily return. The three lowest VIX groups have the 3 lowest returns; Again the 5th group is visually, but not significance wise, an outlier.
To conclude this year the July comment from a physicist, "why not just buy-and-hold SPY" needs an answer. Yes in 2017 when SPY returned 20.1%, trading at noon and 4pm hardly can be justified with its 2.7% return. I would, however, say it can be justified with a longer view:
In 2015 SPY B&H returned 1.3% while the noon-strategy returned 8.5%;
In 2016 SPY B&H returned 12.0% while the noon-strategy returned 5.7%.