![]() It is also only a snapshot of a point in time.Similarly, what statistical measure best describes a set of data? Its mean? Median? Standard deviation? Skewness? The answer, of course, depends on what exactly you want to know about the set of data, and how comprehensively you want to describe it.Īctive share describes a difference in holdings between a portfolio and its benchmark, however: What single measure defines success for a hockey player? Goals scored? Points earned? Games won in a season, or in the playoffs, or in a career? Stanley Cup titles? In the following three sections, we detail why we believe that much of this focus is misplaced. And not surprisingly, investment managers whose approach results in a high active share relative to their benchmark have continued to highlight this in their marketing materials. While subsequent research 2 using the same data set cast significant doubt on this conclusion, investors, consultants, and even regulators continue to focus a great deal of attention on this one measure. This includes both exchange-traded funds (ETFs) that hold assets and exchange-traded notes (ETNs).The measure was first introduced in a widely read research paper published in 2009 1 that suggested that active share is a predictor of future performance, and argued that managers with higher active share delivered better long-term performance than those with lower active share. There are also nearly two-dozen volatility exchange-traded products (ETPs) for the VIX. Instead, you must purchase instruments that respond to fluctuations of the VIX. Traders can place their hedges through VIX options and futures. You cannot purchase the VIX like a stock or bond. Investors also have the option to use VIX values to price derivatives. Typically, when the price of VIX is:Ġ-15: This can indicate a certain amount of optimism in the market as well as very low volatility.ġ5-25: This can indicate that there is a certain amount of volatility, but nothing extreme.Ģ5-30: This can indicate that there is a certain amount of market turbulence and volatility is increasing.ģ0 and over: This can indicate that the market is highly volatile and there may be some extreme swings soon.Īnd because the VIX is an index, it can be tracked as well as traded using a variety of options and exchange-traded products. This knowledge can be used to make informed investment decisions. As volatility can often signal negative stock market performance, volatility investments can be used to speculate and hedge risk. The VIX can help investors gauge market sentiment as well as volatility to identify investment opportunities. That's why it's a good idea to use the VIX in tandem with technical and fundamental analysis. One thing to keep in mind is that current volatility cannot be known ahead of time. If the VIX is falling, there's less demand, and options prices tend to fall. If the VIX is rising, demand for options is increasing, and therefore, becoming more expensive. ![]() ![]() The performance of the VIX is inversely related to the S&P 500 – when the price of the VIX goes up, the price of the S&P 500 usually goes down. The VIX is often referred to as the market’s “fear index or fear gauge”. While the VIX only measures the volatility of the S&P 500 Index, it has become a benchmark for the U.S. It can help investors estimate how much the S&P 500 Index will fluctuate in the next 30 days. ![]() The price of this option is based on the prices of near-term S&P 500 options traded on CBOE. The Volatility Index or VIX is the annualized implied volatility of a hypothetical S&P 500 stock option with 30 days to expiration.
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