Monday, January 16, 2012

S&P 500 / VIX Matrix

As a follow up to last week's VIX as a Predictor of Equity Returns and Model Building / Data Mining posts, I put together the following two 'VIX Matrix' tables. These tables show the:
  • One month forward return of the S&P 500
  • One month change in the VIX index
against a number of scenarios involving the one month month change in the VIX and the absolute value of the VIX since its 1990 inception.
  • S&P 500: Less than -1.0% = Red, -1.0% to 1.0% = Yellow, Greater than 1.0% = Green
  • VIX: Less than -2.5% = Red, -2.5% to 2.5% = Yellow, Greater than 2.5% = Green
Lots of interesting information in these tables that I won't bother summarizing (look at it yourself), except to say that even in these turbulent times (bull market 90's, roller coaster 00's), markets were (on average) very mean reverting.

Note that there are plenty of limitations to these tables, most of which involve the limited data points for a number of the cells.

One-Month Forward S&P 500 Performance

One-Month Forward VIX Change

Update: much more on the above from my friend Bill over at Vix and More blog.