Increasing Numerator and Decreasing Denominator (Compound Decay?)

[neilfe]

Thank you in advance to whoever created this forum and a happy new year to all who are reading this

I am trying to track the ratio of SPY to its triple inverse security SPXU, thus, each 1% increase in SPY should be a 3% decrease in SPXU and vice versa. Given that the general direction of SPY is upwards and thus, SPXU is downwards, the percentage move loses tracking value as SPY gets larger and SPXU gets smaller. For example, just looking from Oct 13 to Today, SPY (adj for dividend) moved from 433.66 to 477.7 - a move of 10.15% and one would expect the SPXU to therefore move down (10.15*3) 30.45%. But over the same period, SPXU declined from 16.77 to 12.19, only a decrease of 27.3%. Trying to account for the other 3%, is that simply compound decay or is there a better way to calculate it. Within a small range the difference is not great, but it definitely grows over time

Appreciate any insight??

 

[Harry_the_cat]

I've no idea what SPY and SPXU stand for but that's ok.
I think the answer to you question depends on the time period. So the 1% increase in SPY means a 3% decrease in SPXU for what time period? Per day? Per month? That will make a difference to your calculations.

 

[BigBeachBanana]

've no idea what SPY and SPXU stand for but that's ok.

They're stock names

 

[neilfe]

Much thanks for your reply - the 3:1 movement is on a daily basis, and my guess might be that compounding causes the decay, so trying to figure out a better way top track this. The working assumption would be that a 10% move in a month would cause a 30% move over the same time period