Some assets appear to have a tendency to “mean revert”, meaning that large positive moves are often followed by negative ones (and vice versa). On average, this should
result in a positive spread between the daily and bi-weekly realized variance of the returns of such assets. The SGI VI Gravity Index is a systematic index with its level published daily on Bloomberg, that aims to generate positive performance by capturing this potential spread through hypothetical positions that are long the daily variance and short the bi-weekly variance of the SGI VI Spread Index*.
* The SGI VI Spread Index aims to be a systematic investible proxy to the VIX Index, with potentially enhanced mean reversion patterns.
The SGI VI Gravity Index takes hypothetical long positions in the daily variance and hypothetical short positions in the bi-weekly variance of the SGI VI Spread Index. Exposure to the variance spread is capped and floored at 200% and -20% respectively, in order to mitigate the risk of drawdown following a prolonged trend in the SGI VI Spread Index.