This is the second post in the Project Z series.
Today we look at the QQQQ component of our Lazy Man trading model using the VXX lens.
Once again we're looking at a divergent pair and in response to a comment by Gary on yesterday's post, keep in mind that I'm really not interested in taking both sides of this trade . . I'm just using the VXX to gauge the relative volatility and linearity of the rotation model components.
Just as a point of reference the current beta of the Qs is 1.1o, while the beta of the EEM tested yesterday is 1.47.
Both the Qs and EEM have eerily similar equity curves and linearity values. The Qs produce 16% more P&L gain and this may be traced to my tightening of the N day stop to 7, while I let the EEM ride out to 9 days. The Qs have a habit of acting a bit more squirrelly than the EEM so I'm inclined to rein it in as much as possible. One result of this short stop is that whereas the EEM pair generated all long EEM signals, the Qs variation produces 6 longs and 2 shorts.
After we examine the metrics of all 4 components we'll check the alignment of the signal dates to see how much deviation from SPY momentum can be detected. This is the process I term "basket weaving" and was explored previously with the FXY PDQ model.
Tomorrow we'll look at the DBC.