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Showing posts from November, 2021

How stock and volatlity ETFs compare. S&P 500 (SPY) and VIX Short-Term Futures (VXX)

  The Stock Market (S&P 500) has returned on average 1.4% per month and the Volatility ETF (VXX) has returned -4.6% per month.  This data goes back to 2009. Where the returns have a -0.76 correlation. Monthly Returns SPY VXX count 154 154 mean 1.4% -4.6% std 4.1% 19.3% min -12.5% -35.2% 25% -0.6% -15.6% 50% 1.9% -8.6% 75% 3.7% 2.3% max 12.7% 102.8% The Monthly Return Distributions SPY and VXX Monthly Returns - unpackinvesting.com Takeaways SPY and VXX are strongly negatively correlated with -0.76 since VXX inception The monthly magnitude of returns is about -3x times with almost 5x times the volatility. With the strong negative correlation and greater volatility VXX can make a great hedging vehicle for SPY or shorting VXX can be utilized as a more capital efficient exposure tool (leverage). Further interesting research can include testing if VIX levels have any forecasting ability in SPY and VXX in returns or volatility

4 Different Quantifiable attributes that measure Risk and how same dollar investments can have different Risks

Here are different quantifiable attributes that measure risk: stock borrow / lending rate, historical volatility, implied volatility and margin. #1 Stock Borrow / Lending Rate  This is the rate at which it costs to borrow securities (if you want to sell them short) and the corresponding rate to lend securities to someone that wants to borrow them.  For example, this is quoted on Interactive Brokers "SLB Rates", SPY has a Fee rate of 0.25% and a Rebate rate of -0.25%.  While BITO has a Fee rate of 0.91% and a Rebate rate of -0.91%.  This means that it will cost less to borrow SPY than BITO and also that if you lend BITO you will make more money than lending SPY.  Generally, if things cost more to borrow, they have more risk associated with them. #2 Historical (or Realized) Volatility This number is calculated from historical prices.  It is basically the standard deviation of prices over a given time window and then normalized into an annualized number so tha...

How the world's largest retirement funds invest

The world's 5 largest retirement funds ranked by assets are Japan ($1.7 Trillion),  Norway ($1.3 Trillion), South Korea ($765 Billion), U.S. Federal Retirement Thrift ($650 Billion), and ABP of Netherlands ($600 Billion).  With such a large size, all these funds have a large portion in public equities (stocks) ranging from 42% to almost 73%.  Their bond allocations range from 25% to 50% with the remaining in alternatives including real estate from 2.5% to 14%. Ranked By Total Assets Fund Country Total Assets (millions) Government Pension Investment Japan $1,719,987 Government Pension Fund Norway $1,305,920 National Pension South Korea $765,446 Federal Retirement Thrift U.S. $651,124 ABP Netherlands $607,367 complete list https://www.pionline.com/interactive/worlds-largest-retirement-funds-2021  #1 Government Pension Investment, GPIF, Japan - $1.7T Details can be found here: https://www.gpif.go.jp/en/ Allocation Details can be found here: https://www.gpif.go.jp/en/per...

How to Earn over 8% with USD Stablecoins (but with some non-tradtional risks related to crypto)

Holding USD "Stablecoins" at many institutions right now offer a very attractive APY (annual percent yield) much higher than traditional banks (below are a few examples). APY FDIC Insured BlockFi.com 9.50% N Gemini.com 8.05% N Coinbase.com 0.15% N National Average 0.12% Y What is a USD stablecoin? It is a digital asset (crypto currency) that is backed by USD 1 to 1.  The more reputable ones are USDC - offered on Coinbase through a company called Circle and GUSD - offered through Gemini.  These 2 are companies are based in the US and have audited financials to verify the trust backing these coins have enough reserves to meet the 1 to 1 ratio. These are purchasable and redeemable for USD There are other Stablecoins that are not as transparent about holdings like TUSD or Tether.  And even other Stablecoins backed by a dynamic ratio of Etherium -> DAI. Stablecoins and their market capitalization can easily be found at https://coinmarketcap.com/view/stablecoin/ How does it ...