Investment Performance of Shorted Leveraged ETF Pairs

We analyze trading strategies involving triple-leveraged and inverse triple-leveraged ETF pairs by simulating daily returns over a 48 year period. Our results show that many such strategies significantly outperform the S&P 500 on a risk-adjusted basis. The Sharpe ratio appears to be maximized when shorting the bear triple-leveraged ETF and the bull triple-leveraged ETF in a 2:1 proportion, and simultaneously holding Treasuries long. In this case we find that the average annual Sharpe ratio is more than four times higher than for the S&P 500, and that the strategy outperforms the market in 43 of the 48 years