aphexmean

Short strategy on DGAZ & UGAZ

The idea is to open two short position on these etfs with an equal size of money, effectively splitting the investment 50-50. The result, will be the opposite of the showed equity line (which is downward sloping because I cannot enter negative prices in the chart).

In this example:
short sell 145 DGAZ
short sell 50 UGAZ

This idea can be found using cointegration methods as well, though I used another method that run an optimization that spits out weights -- useful for a large number of assets.

The weights are 50-50 because the two assets are 1) highly correlated (~ minus 1), 2) bear the same leverage (3x) and 3) the expected return of the underlyings are negative, thus suggesting negative weightings.

The historical volatility and its mean are showed below.
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