A note on VIX for postprocessing quantitative strategies
Jun Lu, Minhui Wu
TL;DR
This paper explores using the VIX index to enhance the performance and risk management of quantitative trading strategies through postprocessing, demonstrated on Chinese stock indices.
Contribution
It introduces a novel method of applying VIX for postprocessing to improve Sharpe ratio and risk control in quantitative strategies.
Findings
VIX-based postprocessing can increase Sharpe ratio.
The method reduces maximum drawdown.
Results are demonstrated on Chinese stock indices SH510300 and SH510050.
Abstract
In this note, we introduce how to use Volatility Index (VIX) for postprocessing quantitative strategies so as to increase the Sharpe ratio and reduce trading risks. The signal from this procedure is an indicator of trading or not on a daily basis. Finally, we analyze this procedure on SH510300 and SH510050 assets. The strategies are evaluated by measurements of Sharpe ratio, max drawdown, and Calmar ratio. However, there is always a risk of loss in trading. The results from the tests are just examples of how the method works; no claim is made on the suggestion of real market positions.
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Taxonomy
TopicsFinancial Markets and Investment Strategies · Stock Market Forecasting Methods · Capital Investment and Risk Analysis