Thursday, October 4, 2007

SPX-VIX Correlation Nugget

I’ve been banging the SPX-VIX correlation drum fairly hard lately, so it’s time I moved on to other things.

Before I do, however, I will point the reader to a previous post in which I laid out some of my thinking on the significance of the correlation. I think the title says it all: “High Positive Correlation Between VIX and SPX Often Signals Market Weakness.”

There is also the issue of recent correlation data. For the past week and a half or so, the SPX and VIX have had an unusually high positive correlation, at least relative to historical data. In fact, the last time the SPX and VIX showed correlation levels this high for several days running it was…February 22, 2007, just three days before the largest VIX spike since the CBOE began tracking the VIX in 1990. Now before anyone jumps to conclusions, none of the eight previous correlation ‘spikes’ of comparable magnitude from the current decade resulted in a significant move in the SPX, so the historical record has to be considered ambiguous at best in the current environment.


Marc Eckelberry said...

Good site with great information, thanks. Side note: on October 2nd, the VIX did not confirm the ES (SPX future) retest of 10/1 highs (1560/1561). In fact, it made a clear higher low (17.11 on 10/1, 17.60 on 10/2), hence the recent market weakness.

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