Tracking the VIX Index—TVIX and UVXY Are Close

For a long time investors have been frustrated in their desire to directly invest in the VIX index.  Now three ETNs, one by design, and the two other perhaps by accident are tracking (or out-performing) the VIX index on both a daily percentage move basis and for multi-day holding times.

Historically the daily percentage moves of short term (1/2 month) volatility ETNs like VXX tend to be about 50% of the VIX index moves. Since 2X VelocityShares’ TVIX and ProShares’ 1.5X UVXY are leveraged versions of VXX, you might expect them to track the VIX index—and they do a pretty good job except for the effects of contango/backwardation.

TVIX compared to VIX on a daily percentage move basis.

Daily percentage moves of TVIX and the VIX index, click to enlarge

While the daily percentage correlation is important, unless you’re day trading volatility (shudder) the more important attribute would be the results of holding these ETNs for a few days. In that case how well would they track to the VIX index? The chart below shows how $1000 invested in each of these starting July 1st,2011 would fare.

July 1, 2011 investment in VIX, TVIX, CVOL, VXX–click to enlarge

TVIX skyrocketed during this panicky time. A doubled benefit from backwardation was part of the gain, but the trend lines on the chart below suggests there are other factors.  I suspect the rest is from the compounding effects of 2X leverage.

TVIX, CVOL, and VXX, showing trendlines from July 1, 2011–click to enlarge

TVIX and UVXY look like the vehicle of choice if you want to bet on VIX’s moves during times of high volatility—it matches VIX’s daily moves well and greatly benefits from backwardation.

First posted on

Click here to leave a comment

3 thoughts on “Tracking the VIX Index—TVIX and UVXY Are Close”

  1. Hiya

    My 2 cents worth…

    The compounding on leveraged ETFs can either work for you or against you.

    If the underlying is very volatile around a ‘mean’, compounding will kill the ETF, as you are constantly buying high and selling low to rebalance (whipsaw)

    If the underlying ‘trends’ without many outsized moves away from that trend…then the compounding benefits you (i.e. you are mostly adding to a winning position as it moves one way)

    In general the compounding has benefited VXX Etfs as the VXX is much more trendy than say XLF etc, where 3x ETFs have been destroyed from much more erratic price patterns over the years

  2. Another great post, thanks for the info. I always looked for an etf to long the vix when it reached levels of 15-17 this year which was a very good level to take long but there was no point in taking vxx because of contango. XVZ which you posted recently is not good enough, doens’t give good returns comparing to the vix and still not liquid.
    CVOL looks like the best option but again it must be liquid in order to trade it and it doens’t seem to be so.
    Can you try to figure out why tvix gives more than double vxx? it’s interesting if we remember leveraged etf’s has decay which supposed to give you less than double the return and here we get almost *3, very interesting to know why, I quess in bullish time it would also behave much worse than double vxx, can you please check it?

    • Hi Jones,
      Yes, the discrepancy is bugging me too. It will be a few days at least before I will look at it again because I’m working on a CVOL backtest consulting project. I suspect it is a compounding effect, the same thing that kills the leveraged funds on the negative side.
      Regarding CVOL, the bid/ask spread currently is running about 0.7%, so given the volatility of CVOL that is a pretty small penalty. I suspect unless you are trading really big bucks that it would be reasonably liquid in terms of being to buy / sell without moving the price.

      — Vance


Leave a Comment