Skip to content




S&P 500 Outperforming the VIX

We all know that when the S&P 500 goes up in value, we generally expect the VIX to go down in value.  If we perform a linear regression between the S&P 500 and the VIX, we can come up with a linear formula to rougly predict that relationship.  Using weekly returns going back to September 2009, that regression has an R-squared of about .65:

 

Current weekly SPX return outperforms the VIX

This regression says that the Weekly VIX Return = -5.736* Weekly S&P 500 Return + 2.582.  With the last weekly S&P 500 observation at +4.741%, that would predict a decline of (-5.736*4.741+2.582)= -24.61%.  In reality the VIX only declined 17.33% last week.

This mismatch is even more pronounced with longer term VIX futures.  If we pick the 7th monthly contract, the March 2012 issue, we see a massive out-performance by the S&P 500:

In this example, the March VIX futures actually had a positive 3.54% return when the S&P 500 had a 4.741% return.  Quite a bit off from the predicted -6.5% return for that particular VIX futures contract.

This analysis can be repeated with treasury yields and corporate credit spreads.  All three risk factors have become slightly misaligned from the broader equity market returns.  Either equities are leading the way up, or the lack of trading volume shows that the current rally has little true support.

Be Sociable, Share!

Posted in Markets, Media, Trading Ideas.

Tagged with , , , , .


0 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.



Some HTML is OK

or, reply to this post via trackback.



Get Adobe Flash player
Copyright © 2009-2013 SurlyTrader DISCLAIMER The commentary on this blog is not meant to be taken as an investment advice. The author is not a registered investment adviser. There is no substitute for your own due diligence. Please be aware that investing is inherently a risky business and if you chose to follow any of the advice on this site, then you are accepting the risks associated with that investment. The Author may have also taken positions in the stocks or investments that are being discussed and the author may change his position at any time without warning.

Yellow Pages for USA and Canada SurlyTrader - Blogged

ypblogs.com