Following big down days I can usually be found waving statistics about showing why days like today are simply the inherent cost of chasing big returns (read more). Since 03/2004, XIV has suffered this magnitude of loss 40 times, or nearly 4 times a year. Business as usual.
But today’s loss was a little different in that it came with little warning. XIV was within 1% of a new high when world events knocked it off course. By my count, major losses like this one from a near-term high have occurred just 9-times previously.
In the table below I look at how XIV has performed in the days, weeks, and month following each of those 9 past surprise losses.
I loosened the criteria a bit from what we saw today in order to include more observations. I’m looking at all losses in excess of -8% when XIV was within 5% of a near-term high.
The important takeaway from the table is how weak returns have been in the weeks and month following the initial loss. In only 1 instance was XIV up 1-week out, and in only 3 instances was it up a month later.
One can’t draw too strong a conclusion based on just 9 observations, but this is definitely something I’ll be watching in the days and weeks ahead.
Volatility Made Simple