Structural Convexity Index: Capturing Flight-to-Quality with an Always-On Long/Short Crisis Strategy
The Structural Convexity Index (SCI) is a new investment strategy that aims to protect against stock market crashes while still earning long-term gains. SCI holds permanent positions between strong and weak assets in gold, energy, and credit sectors. It is rules-based and rebalanced monthly, avoiding market timing. Backtests from 2007 to 2025 show a 7.8% annual return and strong crisis performance, but limited gains in bull markets. Real-world costs and discipline are key challenges.
What it examines
This paper introduces the Structural Convexity Index (SCI), a systematic long/short strategy designed to deliver crisis protection and steady growth by exploiting flight-to-quality dynamics. SCI uses fixed long/short pairs in gold, energy, and credit sectors, aiming for reliable crisis alpha without relying on market timing.
What it concludes
SCI shows strong crisis protection and steady returns, especially when traditional diversification fails. Its approach is useful for investors seeking portfolio resilience during market stress. The main challenge is holding the strategy during bull markets. Future research may refine implementation and explore broader applications in portfolio construction.
Evidence objects
The Structural Convexity Index (SCI) is a new, always-on long/short strategy that aims to deliver 'crisis alpha'strong protection and positive returnsduring major stock market downturns, without relying on market timing.
key_findings bullet 1 · key_findings · validation V0
SCI permanently holds spreads between durable and fragile assets across gold, energy, and credit sectors, rebalancing monthly. In backtests (2007--2025), it achieved a 7.8% annual return and outperformed during every major equity drawdown.
key_findings bullet 2 · key_findings · validation V0
Notably, SCI posted a +24.2% gain during the 2022 inflation crisis when both stocks and bonds fell, but it captures only 18% of S&P 500 upside in bull markets, potentially deterring short-term-focused investors.
key_findings bullet 3 · key_findings · validation V0
This paper presents the Structural Convexity Index (SCI), an innovative, always-on long/short strategy leveraging durable-minus-fragile spreads across gold, energy, and credit. Its regime-independent convexity, behavioral moat concept, and persistent crisis alpha capture distinguish it from traditional timing-based defenses, offering a compelling, original approach for equity and ETF drawdown protection.
key_findings bullet 4 · key_findings · validation V0
Raw abstract and provenance
- … figures in this paper, these are gross hypothetical returns and do not include … or discretionary decisions but emerge automatically from the asset dynamics during stress. …
Source row: 1869 · abstract type: snippet