Q2 STOCKS TO BUY

Why This VIX Pop Was Different

The correlation between VIX and SPY is high at the moment

Jul 16, 2015 at 9:34 AM
facebook X logo linkedin


Even though the CBOE Volatility Index (VIX) remained in the teens throughout the recent Sino-Grecian Scare Fest, the interday and intraday moves were on the violent side. And I know we always say "this time was different," but indeed, this time was a little different. This, from Bloomberg.

"Since April, the VIX has jumped an average of 17 percent on days when the S&P 500 fell 1 percent or more, compared with 12 percent on average for similar daily moves since the start of the bull market, according to Bloomberg data.

" ... measures of correlation between the S&P 500 and VIX also point to "near-panic conditions" in the market, Sundial Capital Research Inc.'s Jason Goepfert wrote in a July 1 note. The two gauges are trading the most inverse to each other since December 2011, Bloomberg data show."

That correlation stat intrigued me a bit. I checked and, of course, Jason and Bloomberg are correct. I calculated a rolling 20-day correlation between the day-over-day VIX moves vs. the day-over-day SPDR S&P 500 ETF Trust (SPY) moves going back to July 2009, and here's how it looks:

150716warner1

We're at negative 0.97 right now, which needless to say is about as low (really high) as it gets. In other words, we're in nearly perfect inverse correlation. Over the entire sample, VIX and SPY have a negative 0.80 correlation, so we're indeed detached from the norm.

Incidentally, those blips "up" toward zero are almost all near the end of calendar years, meaning it's most frequently just a time when the market's not moving much and VIX is correlating more to the pain of paying time decay than to actual volatility in the marketplace. But I digress.

The most important question is whether periods of increased correlation are at all predictive of future market action. And best I can tell, the answer is no.

At the risk of going all "second derivative," I compared the backward-looking, rolling 20-day VIX-SPY correlations with 20-day forward-looking SPY returns. And there was virtually no relationship -- they have a correlation of 0.013. And here's a scatter plot of the data:

150716warner2

That's truly a chart about nothing. So, it is kind of interesting to see the recent spike in emotions. Unfortunately, it doesn't yield us a whole lot in terms of clues going forward.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.
 
 

Which of These SUB-$5 Stocks Could 26x From Here? (AD)

He called a rare 11x on Tesla…

Then he called a 26x on Workhorse…

Then an even rarer 35x on Nio Inc…

Now Tim Bohen says these 5 tiny “America First” stocks are next up in 2025.

They’re trading for less than $5 right now.

But thanks to Elon & Trump’s new alliance…

They could be off to the races in Trump’s first 100 days.

And right now for a limited time…

You can get the names & tickers for just $1 here. (AD)

GRAND SLAM COUNTDOWN

 
 

Featured Articles from Trusted Partners:

🚀 One Stock Pick Could Change Everything in 2025
What if one stock pick could define your success next year? Get 10 expert-vetted stocks set for 2025—plus 5 bonus picks to watch now. Get the Report →

🆕 New Options Need New Trading Strategies
Zero-DTE options are the newest (and hottest) options to trade.  Professional traders have rushed into the market and are making a mint.  Don’t get left behind - learn all about these options, how to trade them, market setups to profit from, plus much more. Download now →

👀 Revealed: 3 Defensive Stocks for Your Portfolio
Worried about the market? This free report reveals 3 under-the-radar defensive stocks for uncertain times in any kind of economy.

 

 
 

FREE Report Download

 

Follow us on X, Follow us on Twitter