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I backtested the max drawdown of a short sqqq portfolio during the dot com bubble
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Assumptions:
- backtest period was top of the market March 10 2000 to bottom Oct 8 2002
- did not account for dividends or risk- free rate, could not account for borrow rate, exp ratio
- These in aggregate would have probably led to a worse drawdown as the inverse 3x fund receives 4x the risk free rate
Results:
- despite high volatility, max drawdown happened at market trough (in 2022 sqqq peaked before qqq trough)
- max drawdown was a 416% increase in the price of SQQQ versus a 82.4% decrease in QQQ
- at a 50% QQQ drawdown, SQQQ was up 160%
Conclusion: short SQQQ can be ideal to long TQQQ in some markets, but in all markets one should have a smaller short SQQQ allocation than one would in a long TQQQ portfolio
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