Creating a Table of Monthly Returns With R and a Volatility Trading Interview

By Ilya Kipnis

(This article was first published on R – QuantStrat TradeR, and kindly contributed to R-bloggers)

This post will cover two aspects: the first will be a function to convert daily returns into a table of monthly returns, complete with drawdowns and annual returns. The second will be an interview I had with David Lincoln (now on youtube) to talk about the events of Feb. 5, 2018, and my philosophy on volatility trading.

So, to start off with, a function that I wrote that’s supposed to mimic PerforamnceAnalytics’s table.CalendarReturns is below. What table.CalendarReturns is supposed to do is to create a month X year table of monthly returns with months across and years down. However, it never seemed to give me the output I was expecting, so I went and wrote another function.

Here’s the code for the function:

require(data.table)
require(PerformanceAnalytics)
require(scales)
require(Quandl)

# helper functions
pastePerc 

Here's how the output looks like.

spy 

And with percentage formatting:

calendarReturnTable(spyRets, percent = TRUE)
Using 'Value' as value column. Use 'value.var' to override
         Jan      Feb     Mar     Apr     May     Jun     Jul      Aug      Sep      Oct     Nov     Dec   Annual      DD
1993  0.000%   1.067%  2.241% -2.559%  2.697%  0.367% -0.486%   3.833%  -0.726%   1.973% -1.067%  1.224%   8.713%  4.674%
1994  3.488%  -2.916% -4.190%  1.121%  1.594% -2.288%  3.233%   3.812%  -2.521%   2.843% -3.982%  0.724%   0.402%  8.537%
1995  3.361%   4.081%  2.784%  2.962%  3.967%  2.021%  3.217%   0.445%   4.238%  -0.294%  4.448%  1.573%  38.046%  2.595%
1996  3.558%   0.319%  1.722%  1.087%  2.270%  0.878% -4.494%   1.926%   5.585%   3.233%  7.300% -2.381%  22.489%  7.629%
1997  6.179%   0.957% -4.414%  6.260%  6.321%  4.112%  7.926%  -5.180%   4.808%  -2.450%  3.870%  1.910%  33.478% 11.203%
1998  1.288%   6.929%  4.876%  1.279% -2.077%  4.259% -1.351% -14.118%   6.362%   8.108%  5.568%  6.541%  28.688% 19.030%
1999  3.523%  -3.207%  4.151%  3.797% -2.287%  5.538% -3.102%  -0.518%  -2.237%   6.408%  1.665%  5.709%  20.388% 11.699%
2000 -4.979%  -1.523%  9.690% -3.512% -1.572%  1.970% -1.570%   6.534%  -5.481%  -0.468% -7.465% -0.516%  -9.730% 17.120%
2001  4.446%  -9.539% -5.599%  8.544% -0.561% -2.383% -1.020%  -5.933%  -8.159%   1.302%  7.798%  0.562% -11.752% 28.808%
2002 -0.980%  -1.794%  3.324% -5.816% -0.593% -7.376% -7.882%   0.680% -10.485%   8.228%  6.168% -5.663% -21.588% 32.968%
2003 -2.459%  -1.348%  0.206%  8.461%  5.484%  1.066%  1.803%   2.063%  -1.089%   5.353%  1.092%  5.033%  28.176% 13.725%
2004  1.977%   1.357% -1.320% -1.892%  1.712%  1.849% -3.222%   0.244%   1.002%   1.288%  4.451%  3.015%  10.704%  7.526%
2005 -2.242%   2.090% -1.828% -1.874%  3.222%  0.150%  3.826%  -0.937%   0.800%  -2.365%  4.395% -0.190%   4.827%  6.956%
2006  2.401%   0.573%  1.650%  1.263% -3.012%  0.264%  0.448%   2.182%   2.699%   3.152%  1.989%  1.337%  15.847%  7.593%
2007  1.504%  -1.962%  1.160%  4.430%  3.392% -1.464% -3.131%   1.283%   3.870%   1.357% -3.873% -1.133%   5.136%  9.925%
2008 -6.046%  -2.584% -0.903%  4.766%  1.512% -8.350% -0.899%   1.545%  -9.437% -16.519% -6.961%  0.983% -36.807% 47.592%
2009 -8.211% -10.745%  8.348%  9.935%  5.845% -0.068%  7.461%   3.694%   3.545%  -1.923%  6.161%  1.907%  26.364% 27.132%
2010 -3.634%   3.119%  6.090%  1.547% -7.945% -5.175%  6.830%  -4.498%   8.955%   3.820%  0.000%  6.685%  15.057% 15.700%
2011  2.330%   3.474%  0.010%  2.896% -1.121% -1.688% -2.000%  -5.498%  -6.945%  10.915% -0.406%  1.044%   1.888% 18.609%
2012  4.637%   4.341%  3.216% -0.668% -6.006%  4.053%  1.183%   2.505%   2.535%  -1.820%  0.566%  0.900%  15.991%  9.687%
2013  5.119%   1.276%  3.798%  1.921%  2.361% -1.336%  5.168%  -2.999%   3.168%   4.631%  2.964%  2.589%  32.307%  5.552%
2014 -3.525%   4.552%  0.831%  0.695%  2.321%  2.064% -1.344%   3.946%  -1.379%   2.355%  2.747% -0.256%  13.462%  7.273%
2015 -2.963%   5.620% -1.574%  0.983%  1.286% -2.029%  2.259%  -6.095%  -2.543%   8.506%  0.366% -1.718%   1.252% 11.910%
2016 -4.979%  -0.083%  6.724%  0.394%  1.701%  0.350%  3.647%   0.120%   0.008%  -1.734%  3.684%  2.028%  12.001% 10.306%
2017  1.789%   3.929%  0.126%  0.993%  1.411%  0.637%  2.055%   0.292%   2.014%   2.356%  3.057%  1.209%  21.700%  2.609%
2018  5.636%  -3.118%      NA      NA      NA      NA      NA       NA       NA       NA      NA      NA   2.342% 10.102%

That covers it for the function. Now, onto volatility trading. Dodging the February short volatility meltdown has, in my opinion, been one of the best out-of-sample validators for my volatility trading research. My subscriber numbers confirm it, as I’ve received 12 new subscribers this month, as individuals interested in the volatility trading space have gained a newfound respect for the risk management that my system uses. After all, it’s the down months that vindicate system traders like myself that do not employ leverage in the up times. Those interested in following my trades can subscribe here. Furthermore, recently, I was able to get a chance to speak with David Lincoln about my background, and philosophy on trading in general, and trading volatility in particular. Those interested can view the interview here.

Thanks for reading.

NOTE: I am currently interested in networking, full-time positions related to my skill set, and long-term consulting projects. Those interested in discussing professional opportunities can find me on LinkedIn after writing a note expressing their interest.

To leave a comment for the author, please follow the link and comment on their blog: R – QuantStrat TradeR.

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