Backtest a dynamically risk-balanced energy and technology portfolio targeting 10% annualized volatility.
The XLE + XLK Vol Targeting Strategy employs a dynamically risk-balanced approach by allocating to the XLE energy and XLK technology sector ETFs based on inverse exponentially weighted moving-average volatility. This method ensures that the portfolio targets an annualized volatility of 10%, adjusting exposure to maintain this level.
In the XLE + XLK Vol Targeting Strategy, residual capital not allocated to the XLE and XLK ETFs is invested in US Treasury bills. This approach provides a stable return while financing leveraged exposure at the US T-Bill return plus 1% per year, enhancing overall portfolio efficiency.
The results presented in the XLE + XLK Vol Targeting Strategy dashboard are hypothetical and based on historical ETF prices. They do not account for taxes or all real-world trading frictions, which may impact actual investment performance.
The strategy allocates to XLE and XLK using inverse exponentially weighted moving-average volatility weights and scales total exposure to a 10% annualized volatility target. Weights use information available before each return period to reduce look-ahead bias. Residual capital is invested in US Treasury bills, while leveraged exposure is financed at the US T-Bill return plus 1% per year. Results are hypothetical, use historical ETF prices, and do not include taxes or all real-world trading frictions.
