Breaking Down Post-Crash Historical Volatility on the SPX

Travel and oil stocks, unsurprisingly, have seen the biggest spike in HV

Senior Quantitative Analyst
Mar 25, 2020 at 6:30 AM
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What else is there to talk about but the huge swings in the stock market lately? As with most other stats I’ve written on recently, what we’re seeing is nearly unprecedented. The 21-day historical volatility (HV) on the S&P 500 Index (SPX) is at 87%. The only two times in history where this was surpassed were 1987 after Black Monday, in which the index fell over 20% in a single day, and 1929, kicking off the Great Depression. Interestingly, what followed those two time periods could not have been more different. Stocks rebounded quickly after that one-day drop in 1987, retaking the highs in less than two years. After 1929, however, it was more than two decades before stocks were able to get back to those lost levels.

The chart below also shows the median 21-day historical volatility of the stocks in the S&P 500 Index. In the rest of the article, I’ll compare the volatility of the index and the stocks, and then I’ll list some stocks which have seen the biggest and smallest changes in volatility since before the crisis.

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Index Volatility Nears Stock Volatility 

The chart below shows a ratio comparing the 21-day HV of the S&P 500 Index to the median HV of the stocks currently in the index. The ratio has moved toward one during the turmoil. Specifically, it hit 1.06. The two other times in the chart where this occurred were in 2008 during the financial crisis and in 2015 during a market pullback. This move toward parity during bad times is a reminder that everything becomes correlated during a crash. During normal times, the ratio averages around 2.0 meaning you get twice as much volatility by playing a typical stock in the index compared to the index itself. But in these crazy times, you’re getting almost as much volatility playing the index.

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Pre/Post Crisis HVs on Individual Stocks

I investigated how HVs changed on individual stocks in the S&P 500 Index from Feb. 19 (the recent all-time high on the S&P 500 Index) to where they are now. I originally thought I could find a group of stocks that are trading like they traded before all this crazy stuff started happening. No stocks were spared though in this crash.

This first list are stocks that had the smallest percent change. eBay (EBAY) tops the list as their HV went up by only 25%. EBAY's historical volatility spiked prior to the recent selloff on earnings and merger rumors -- so when the coronavirus news hit, the HV was already high relative to its past. Pharmaceuticals and healthcare companies are prominent on the list. These companies have the potential to profit during this time, so they aren’t seeing the collapse that the rest of the market is experiencing.

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Here’s a list of stocks that have seen the biggest increase in HV's. The list is dominated by utilities, real estate, and low volatility stocks.

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Since the list above seems to be a list simply of low volatility names, I made a second list of stocks that have seen big increases in their historical volatility. These stocks, however, had a pre-crisis HV of at least 25%. As you might expect, it’s stocks that got hit the hardest during the crash including oil names and travel and leisure companies.

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