The _Gorilla commented on my choice of words to differentiate between the relative attractiveness of the Qs versus SPY and I admit that my concept of “volatility” is perhaps a bit unique. Volatility is typically defined as the variation in price over time and in and of itself is inherently neither good or bad…daytraders seek it, investors avoid it. I have grown so use to thinking of volatility in terms of deviation from equity curve linearity that I sometimes forget that most traders don’t think that way. Sorry for the confusion and I appreciate Gorilla calling me on it.
Here’s a couple metrics to explain my argument for trading the Qs versus SPY. On the top- note the RSQ function values of the Qs versus SPY versus the RM risk management algorithm applied to QQQ. Higher RSQ values (EXCEL Pearson function RSQ defined below) mean “better” linearity and less deviation, and, as expected, the RM (risk managed model) produces a higher value than the straight Qs. Applying the 4 year performance matrix to SPY, QQQ and the RM version of Qs…. you decide for yourself if you’d rather be invested in SPY or the Qs. The RM version is for the truly risk adverse. If we substitued “slope” for RSQ we would get similar results. There are innumerable fx functions that traders use to assess the relative performance of a security and many of them would have produced a different scenario. Likewise with the timeframe, which I selected as 1000 trading days. I just like RSQ.
