23 noviembre 2006

Correlación entre el VIX y los suelos/techos

The chart of the VIX shows a high degree of correlation between lows for the S&P-500 and a high implied volatility. There is also a correlation between low levels of the VIX and market highs for the S&P-500. The difficulty lies in calling an exact top.

Many traders seem to try to predict tops and bottoms from the level of the VIX or the VXN. We don't believe that it is possible to predict the bottoms or tops from the levels. We do believe that they are a useful indicator that should be monitored at extremes and for patterns. It is the reversals from when these indicators are overextended that tops or bottoms can be successfully traded, and all traders should be aware of their usefulness as an auxiliary indicator.

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