Backtest
Overview
Funds used
The Core Model is fundamentally a short volatility strategy. The ProShares Short VIX Short-Term Futures ETF (SVXY) is used for short vol exposure. On rare occasions, the Core Model will move into a long volatility position via the ProShares VIX Mid-Term Futures ETF (VIXM).
SVXY provided -1x exposure to the S&P 500 VIX Short-Term Futures Index before February 28, 2018. I adjusted the SVXY price returns for dates prior to February 28, 2018 to match the current -0.5x exposure.
SVXY and VIXM have only been around since 2011, so I used the SHORTVOL index as a stand-in between 2006 and 2011. This substitution is less than ideal since the SHORTVOL index is not the same index SVXY and VIXM track. I made adjustments where I could.
Considerations
It’s important to note transaction costs and taxes aren’t accounted for in this backtest. Further, the backtest makes decisions based on market and futures close prices. In practice, the Core Model makes allocation decisions around 3:30pm ET each day.