AILA S series vs AILAV001

Relationship of Portfolio returns to Vol Index returns



  • We use AiLA-V001 which is a vol index created to measure the markets view on volatility.
  • The AiLA-V001 index was constructed from liquid options across the most liquid commodities.
  • Can we observe any relationships between the AiLA alpha index (AiLA S series) performance and the prevailing volatility conditions reflected by the AiLA-V001?


  • Given the lack of data sufficiency with one single AiLA index, we pooled many AiLA indices together for the analysis.
  • Investigated the expected return historically for the AiLA indices, conditional on different volatility circumstances.
  • We use implied volatility and vol index interchangeably as vol index constitutes a basket of implied volatility

Performance vs IV

  • Split data into three bins based on the prevailing IV index values, i.e. level of volatility.
  • Weak indication of expected returns to be larger during periods with higher implied volatility.
  • The indication disappear when normalizing the returns to the sample of their corresponding bin.
  • Therefore, in case of a significant effect, it would primarily be explained by the different size of the returns rather than the ability to predict their sign.
  • Indication of a uniform index performance when traded on a risk adjusted basis.

Performance vs ∆ IV

  • Split data into three bins based on the prevailing change of IV index values, i.e. decreasing, flat or increasing IV.
  • Indicates a different pattern between long-short and long-only AiLA indices.
  • The AiLA long-short indices indicates a tendency to perform well in both a decreasing as well as increasing IV environment.
  • The AiLA long-only indices indicates a tendency of performing best in a decreasing IV environment and to historically loose money during increasing IV periods.
  • The long-only pattern appears intuitively consistent with the typical IV development during a market crash period, e.g. such as the first half of 2020.

Performance vs ∆ IV

  • The performance pattern w.r.t increasing and decreasing IV is generally reflected also when broken down to an individual AiLA index level.
  • Here 11 out of the 15 long-short AiLA indices yield an expected return historically larger during increasing IV than decreasing IV.
  • All 4 of the long-only AiLA indices yield a smaller expected return during increasing IV than decreasing IV, with negative increasing IV values.
  • It should, however, be noted that the limited data set and corresponding large statistical errors generally makes it difficult to draw strong general conclusions.


  • An implied volatility index (AiLA-V001) was used to measure the markets view on volatility, and was used in a study of potential relationships with the performance of the AiLA alpha indices (AiLA S series).
  • An indication of a slight performance difference w.r.t the level of IV was obtained, however, the potential effect was found consistent with the difference in size of the returns.
  • A different performance pattern was, however, observed between the AiLA long-short vs long-only indices.
  • For the long-short indices high expected returns were obtained both during increasing as well as decreasing IV, whereas for the long-only indices decreasing IV typically was associated with significantly higher expected returns than increasing IV.
  • These result are intended as an initial overview regarding relationships between the AiLA alpha and IV indices, with further research work expected to follow on the topic of volatility.