Metrics: Sigma500 

Sigma500 is an exponentially front-loaded time series of S&P 500 standard deviation.  The index was developed for use in conjunction with the CBOE VIX (and other volatility measures).

As with our other volatility measures, Sigma500 has directional implications at extremes.  One of our daily DejaVu screens jointly compares current actual and implied volatility vs historical precedent for significant outcomes.

Sigma500 also provides context for interpreting VIX.  Option-implied volatility is highly correlated with current actual volatility.  But VIX sometimes goes off independent of current actual, presenting quite different dynamics of option expectation.

Actual volatility is almost always far less than implied volatility, as obvious in the chart below.  (Mark Kritzman of Bernstein Inc has interesting risk-premium analysis that seems to explain this discrepancy.)  Yet the differential varies through time, showing when market expectations and actualities are not aligned.  

Sigma500 & CBOE VIX

 

Sigma500 is one of several time series generated by a proprietary algorithm for extremely close estimate of immediate present (non-lagged) volatility.

To enquire about access and analysis with Sigma500, you can leave a message back at the Metrics page, or use the master checklist of Analytix Services.  Or call directly anytime, at (603) 643-6430.

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