Sharpe ratios of VIX ETNs through 2018-01-31

Discussion in 'ETFs' started by ajensen, Feb 7, 2018.

  1. ajensen


    Morningstar publishes historical returns, volatilities, and Sharpe ratios for ETFs and ETNs. The data for the 5 years through 2018-01-31, before the XIV crash, are below. As measured by the Sharpe ratio, and even more so by the Sortino ratio, the SPY was considerably better than XIV in risk/reward terms even before the crash. An investment with a lower Sharpe than the SPY can be worthwhile if it provides diversification, but XIV was known to have positive correlation and negative convexity with respect to the SPY. UPRO is the triple-leveraged S&P 500 ETF. If one wanted higher returns even at the cost of lower Sharpe, UPRO looked better than XIV or ZIV. I did not have a large fraction of my wealth in XIV, and I did get out on Monday before the crash, but in retrospect I wonder why I was in it at all. Of course, one can try to time vol ETP investments, but collectively, timers will do worse than passive holders because of transaction costs and taxes.

    ETP vol return Sharpe Sortino
    XIV 56.11 42.45 0.92 1.56
    ZIV 25.17 25.28 1.02 1.73
    UPRO 29.75 45.32 1.41 2.77
    SPY 9.52 15.78 1.56 3.10​
  2. Interesting ajensen. I dunno what the Sharpe or Sortino ratio is, I guess I'm going to look those up. But presumably they are some benefit-to-risk ratio. If you looked back at XIV before a couple days ago, it would have had HUUUUUGE gains and not really many drawdowns. So I would assume the ratios look to the underlying assets of the ETFs to determine the ratios, rather than just how they have performed in the market thus far?