Returns are small When VIX goes up

When VIX goes up, returns tend to go down (see this article). 

* The returns on the S&P 500 and the returns on VIX (percentage changes in VIX) were correlated at -67%. The returns on EFA and EEM were correlated to VIX at -43% and -52% respectively. These are high negative correlations and show the danger signal of a rise in VIX.

* During the volatility spike, a very profitable strategy was to sell call options, 

Investment Strategies

Annual rebalancing adds few % over LONG periods of time over buy & forget approach for uncorrelated classes.

Buy & Hold:

Based on modern portfolio theory, based on risk profile of investor create a diversified buy and hold portfolio. Yearly rebalance.

Pros: Easy, diversified

Cons: In bad market can be really bad!

Several portfolios: Coffeehouse, IFA, Permanent portfolio......

Active management:

Be willing to go in full cash if needed. Use stop orders with any purchase.

Momentum strategy:

Buy last years hot hands & sell laggers, sell when momentum is lost.

Pros: works for some outperformance in good markets

cons: very volatile, trading costs could eat away

Sell options:

Sell covered call options, sell puts instead of buying

Buy protective options:

Always have insurance!

Small cap value:

USA, International, Emerging markets: Better returns but more volatility

Portfolio Rebalancing strategies:

* fixed time based

* look for overbought & undersold conditions & then rebalance

Opinion: 4/11/2009

v     Market is probably over bought right now

v     Eliot wave predicts fall –

v     50/100/200 day charts show that we are in long term down trend. Stock markets were too far down from 50 day & 200 day EMA & we are reverting to mean.

v     Elliot wave tells this is first wave on pull up there will be more up waves, so can accumulate on pull backs till averages meet 200EMA.

 

	50MA/200MA, MACD, RSI/ 50% regression lines	Fibonnaci	Elliot waves
$WLSH			$WLSH target 8850 / 8744 1.2% uproom from here, can come down after this – elliot waves/ overbought indicators
VBR
EFA
EEM
DGS
VNQ
GLD
MOO
AGG
LQD
Best performing ETFs for last 3 months