Elastic Sigma
Volatility Regime Mean-Reversion Model
Now Trading Live
Elastic Sigma is now trading live with real capital as of April 2026.
Following extensive research, historical simulation, and validation, the systematic volatility model transitioned to live deployment in April 2026 and is building a real-money track record.
The strategy exploits mean-reversion dynamics in volatility markets through daily signal-based rotation between volatility ETF positions.
Partners interested in model documentation should contact us directly.
Strategy Philosophy
Elastic Sigma is a systematic volatility regime strategy designed to exploit the natural mean-reverting behavior of volatility markets.
The model dynamically rotates between three distinct positions—shorting volatility (28%), long volatility (12%), and short duration bonds or cash (60%)—based on daily proprietary signals and term structure analysis. When the model detects unfavorable conditions or elevated risk, it shifts to cash or ultra-short bonds, providing capital preservation.
Model Characteristics
4.1
Avg Trades/Month
28%
of time Short Vol
12%
of time Long Vol
60%
of time Bonds/Cash
1x
Once Daily (MOC)
How It Works
The Elastic Sigma model employs a systematic approach to volatility regime identification, using term structure analysis as the primary filter for position direction.
Term Structure Analysis
The model continuously monitors the volatility term structure, distinguishing between contango (normal) and backwardation (inverted) states to inform directional bias.
Three-Regime Allocation
The model allocates to one of three positions: shorting volatility (28%), long volatility (12%), or short duration bonds/cash (60%) based on regime classification.
Defensive Bonds/Cash
Approximately 60% of the time, the model allocates to short duration bonds or cash, preserving capital during unfavorable volatility conditions.
ETF Execution
All positions are implemented through liquid ETFs, ensuring transparent pricing and straightforward execution.
Key Characteristics
Elastic Sigma is designed with institutional-grade risk management and transparent execution at its core.
Three-Regime System
The strategy rotates between shorting volatility, long volatility, and short duration bonds/cash. No naked shorting or complex derivatives.
Daily Regime Rotation
Signals are calculated just before market close with regime rotation executed at the close, averaging 4.1 trades per month.
Mean-Reversion Focus
Unlike trend-following approaches, the strategy exploits volatility's natural tendency to return to equilibrium after extreme movements.
ETF-Based Execution
All positions are implemented through liquid, exchange-traded volatility products with transparent pricing and minimal slippage.
Systematic Discipline
100% rules-based execution eliminates emotional decision-making and ensures consistent application of the strategy methodology.
Backtest Results
Hypothetical historical simulation of the Elastic Sigma model across the full sample period.
Hypothetical backtested performance. The figures below are derived from a historical simulation, not actual trading, and do not reflect real capital. They do reflect IBKR execution costs; because all transactions are executed Market-on-Close, the simulation assumes no slippage or liquidity constraints under any conditions. Hypothetical results have inherent limitations and benefit from hindsight. Past performance — whether actual or hypothetical — is not indicative of future results. Provided for informational purposes to licensed partners only.
Strategy Profile
Performance
| CAGR | +271.7% |
| Total return | +9,032% |
| Annualized volatility | 37.6% |
| Sharpe ratio | 3.70 |
| Sortino ratio | 5.43 |
| Max drawdown | −24.2% |
| Calmar ratio | 11.22 |
Consistency
| Positive months | 85.7% |
| Best month | +46.98% |
| Worst month | −17.10% |
| Avg winning month | +14.75% |
| Avg losing month | −4.79% |
| Trade win rate | 66.7% |
| Avg trade return | +2.78% |
Exposure Profile
| Regime | Time |
|---|---|
| Short volatility (SVIX) | 28.2% |
| Long volatility (UVIX) | 11.7% |
| Cash (defensive) | 60.1% |
Annual Returns
| Year | Return |
|---|---|
| 2023 | +433.6% |
| 2024 | +294.6% |
| 2025 | +167.7% |
| 2026 (to Jun 12) | +62.0% |
Trade Frequency
Market-on-Close execution · Jan 2023 – Jun 2026
| Round-trip trades / month | 4.1 (median 4, range 1–8) |
| Regime switches / month | 7.3 |
| Avg holding period | 3.2 days |
| Total closed trades | 171 over 41.3 months |
Monthly Returns (%)
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | EOY |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | +1.39 | −5.47 | +18.74 | +21.72 | +16.40 | +26.72 | +18.49 | +45.62 | +6.86 | +10.59 | +12.32 | +14.02 | +433.59 |
| 2024 | +9.28 | +8.55 | +3.18 | +20.92 | +11.34 | +4.80 | −0.07 | +46.98 | +6.36 | +23.80 | +6.22 | +11.23 | +294.57 |
| 2025 | +10.26 | −3.75 | +5.78 | −0.51 | +24.34 | +19.53 | −17.10 | +11.70 | +6.11 | +12.67 | +30.06 | +12.00 | +167.67 |
| 2026 | +5.94 | +10.24 | −1.81 | +14.09 | +11.66 | +10.92 | – | – | – | – | – | – | +62.04 |
Risk Considerations
Important Risk Factors
Volatility Product Risks
Volatility ETFs are complex instruments that may not track their intended benchmarks precisely. These products can experience significant decay over time due to roll costs and contango effects.
Regime Transition Risk
Sudden regime changes in volatility markets can occur rapidly, potentially resulting in losses before the model can adjust positioning.
Model Limitations
No quantitative model can predict market behavior with certainty. Historical patterns may not repeat, and the strategy may underperform during certain market conditions.
Leverage Considerations
Some volatility ETFs employ leverage, which can amplify both gains and losses. Partners should understand the mechanics of leveraged products.
Volatility trading is not suitable for all investors. Partners should conduct thorough due diligence and consider their risk tolerance before implementation.
Development Status
Model Design
Core signal generation logic and regime detection framework completed
Historical Analysis
Extensive historical simulation and stress testing completed
Live Trading
Trading live with real capital since April 2026, building a verified track record
Partner Integration
API documentation and partner onboarding pending completion
Product Launch
ETI certificate issuance with exchange listing planned
Public Availability
General availability through licensed partner network
Interested in Elastic Sigma?
Partners interested in early access to the Elastic Sigma model documentation and development updates are invited to register their interest.
Register InterestEarly partners will receive priority access to model documentation, signal validation data, and integration support upon launch.