{"id":40889053,"date":"2022-11-26T18:21:31","date_gmt":"2022-11-26T12:51:31","guid":{"rendered":"https:\/\/stockviz.biz\/index.php\/?p=40889053"},"modified":"2022-11-28T11:26:09","modified_gmt":"2022-11-28T05:56:09","slug":"volatility-and-returns-of-momentum-indices","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2022\/11\/26\/volatility-and-returns-of-momentum-indices\/","title":{"rendered":"Volatility and Returns of Momentum Indices"},"content":{"rendered":"\n<p>The standard deviation over 200-days and future 20-day returns from 2010 through 2015 of NIFTY MIDCAP150 MOMENTUM 50 TR and NIFTY200 MOMENTUM 30 TR looks like this:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/raw.githubusercontent.com\/stockviz\/blog\/master\/volatility\/momentum\/NIFTY%20MIDCAP150%20MOMENTUM%2050%20TR.SD200.RET20_LAG20.png\" alt=\"\" \/><\/figure>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/raw.githubusercontent.com\/stockviz\/blog\/master\/volatility\/momentum\/NIFTY200%20MOMENTUM%2030%20TR.SD200.RET20_LAG20.png\" alt=\"\" \/><\/figure>\n\n\n\n<p>Can historical volatility, as measured by standard deviation, be used to enter and exit momentum strategies?<\/p>\n\n\n\n<p>On a rolling basis, there doesn&#8217;t seem to be a strong correlation between historical volatility and future returns. Back-tests over this period might give you a config that might look like it works but it is probably a fluke.<\/p>\n\n\n\n<p>Given that liquid ETFs for these indices are not available and we are stuck with index funds for the foreseeable future, we setup a back-test to calculate the 200-day std. dev. at the end of each month to decide whether to hold it for the next month. Needless to say, the results were pretty lackluster.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/raw.githubusercontent.com\/stockviz\/blog\/master\/volatility\/momentum\/NIFTY%20MIDCAP150%20MOMENTUM%2050%20TR.200.cumulative.png\" alt=\"\" \/><\/figure>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/raw.githubusercontent.com\/stockviz\/blog\/master\/volatility\/momentum\/NIFTY200%20MOMENTUM%2030%20TR.200.cumulative.png\" alt=\"\" \/><\/figure>\n\n\n\n<p>We chose the 2010-2015 period because it avoids the 2008 crash and the subsequent recovery. The back-tests look phenomenal when you include that data but we wanted to see how such a strategy would perform in &#8220;normal&#8221; markets before stress-testing it. We don&#8217;t want to be the generals always fighting the last war.<\/p>\n\n\n\n<p>Code &amp; charts: <a href=\"https:\/\/github.com\/stockviz\/blog\/tree\/master\/volatility\/momentum\" target=\"_blank\" rel=\"noreferrer noopener\">github<\/a><\/p>\n\n\n\n<p>Related:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><a href=\"https:\/\/stockviz.biz\/index.php\/?p=2117073\">Reducing Crash Risk in the Nifty Alpha Indices<\/a><\/li><li><a href=\"https:\/\/stockviz.biz\/2020\/01\/07\/low-volatility-stock-vs-portfolio\/\">Low Volatility: Stock vs. Portfolio<\/a><\/li><li>VIX and Equity Index Returns <a href=\"https:\/\/stockviz.biz\/2018\/11\/12\/vix-and-equity-index-returns-part-i\/\">Part I<\/a>, <a href=\"https:\/\/stockviz.biz\/2018\/11\/13\/vix-and-equity-index-returns-part-ii\/\">Part II<\/a><\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>The standard deviation over 200-days and future 20-day returns from 2010 through 2015 of NIFTY MIDCAP150 MOMENTUM 50 TR and NIFTY200 MOMENTUM 30 TR looks like this: Can historical volatility, as measured by standard deviation, be used to enter and exit momentum strategies? On a rolling basis, there doesn&#8217;t seem to be a strong correlation &hellip; <\/p>\n","protected":false},"author":2,"featured_media":2091813,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[3491,1150],"class_list":["post-40889053","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-momentum","tag-volatility","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40889053","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=40889053"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/40889053\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2091813"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=40889053"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=40889053"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=40889053"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}