Saturday, January 15, 2011

XVIX performance

In a reaction to my previous post about the VXX-VXZ combo, a kind reader has pointed me to the newly launched  UBS XVIX  etn.  From the first look it does not seem to be that liquid, so its ability to track the VXZ-0.5VXX is somewhat questionalble. 
I've decided to take a quick look at the fist month of its existance to check if it is really performing as advertised.

In the graph I've plotte the cumulative change in VIX (index), VXZ, VXX, XVIX and a synthetic VXZ-0.5VXX pair.  It seems that XVIX performing exactly as promised, providing performance very close to the underlying pair, without the cost of rebalancing. 

The following plot shows cumulative tracking error:
An interesting observation is that it does have some occasional tracking errors, of about ~0.3%, providing some arbitrage opportunities.

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