It is well known that the VIX is negatively correlated with the S&P 500, opening up the possibility that a long S&P 500 position could be hedged with a long position in VIX futures. The data shows that a significantly improved return/volatility ratio could have been achieved by combining the two. Using daily data for the S&P 500 and VIX for the period from 7 August 06 to current, we found a correlation coefficient of -0.66, confirming the strong negative correlation (a coefficient of -1 would indicate perfect negative correlation). The annualized daily return over the period for the S&P 500 was 7.7%, with volatility of 21.1% to give a return/volatility ratio of 36%. The maximum drawdown was 74%. For the VIX, these metrics were 63% return, 115% volatility and 55% return/volatility, with maximum drawdown of 108%. Read more