Tag: volatility

Volatility and VIX Charts

Our Volatility and VIX Collection had some charts that were more than two years old. This post updates some of those charts and will re-create them more often.

Volatility can be measured in a number of ways and its profile changes based on the look-back period. The parameters are selected based on what the volatility estimate is used for. Moreover, no two indices exhibit the same profile – traders need to be vary of transplanting trading strategies that work for one market into another.

Historical volatility density plots

20-day historical volatility density plots

historical volatility density plot

20-day historical volatility plots

US S&P 500
S&P 500 20-day historical volatility
Japanese Nikkei 225
Nikkei 225 20-day historical volatility
Indian NIFTY 50
NIFTY 50 20-day historical volatility

Implied volatility

S&P 500 VIX and NIFTY 50 VIX

Code and a lot more charts are on github.

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Volatility

Introduction

Historical volatility and implied volatility.
Read: Part I, Part II

Nifty volatility

Density plots of historical volatility over different horizons.
Read: Large Moves Happen Together, NIFTY Volatility, Historical Perspective
Charts that are updated often: Volatility and VIX Charts

Dollar ETF volatilities

When you convert Indian indices to dollars, their volatility profile changes.
Read: INDA vs. SPY Observed Volatility

VIX – Implied Volatility Index

Do VIX indices across markets have any relationship with each other?
Read: India VIX vs. SPX VIX

Can a simple VIX based trading strategy avoid market losses?
Read: Macro Volatility and the NIFTY 50, VIX and Equity Index Returns, Part I, Part II.

Can VIX be predicted using a simple model?
ARMA + GARCH to Predict VIX

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Macro Volatility and the NIFTY 50

This post is a continuation of our exploration of trying to use macro market indicators to time the NIFTY 50. See World Markets and the NIFTY 50 and India VIX vs. SPX VIX.

Perhaps the problem with using price moving averages was that the major moves were already done before we could short the NIFTY. What if we used volatility instead? Here is how the median of 10-day volatility of major world indices looks like:

macro.volatility

What if we went long only when volatility was below the median and went short otherwise?

macro.trade.a

Looks like the strategy works only in avoiding the 2008 crash. Using observed volatility to time trades doesn’t work. One more to the reject pile.

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INDA vs. SPY Observed Volatility

The iShares MSCI India ETF (INDA) tracks the MSCI India Total Return Index, representing about 85% of the Indian stock market. As a follow up to our earlier post on the historical volatility of the NIFTY historical NIFTY volatility, we thought we’ll compare the volatilities of INDA and SPY, the S&P 500 ETF.

10-day volatility:
INDA.SPY.volatility.density.10

50-day volatility:
INDA.SPY.volatility.density.50

As expected, a dollar denominated emerging market ETF is more volatile than the S&P. File this away in your brain attic.

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NIFTY Volatility, Historical Perspective

Was 2014 an anomaly?

Here’s a density plot of NIFTY volatility across 10-, 20-, 30-, and 50-day periods:

NIFTY.volatility.density.2014

And here’s how it was in 2004 (10-years ago):

NIFTY.volatility.density.2004

For those of who argue that the introduction of the pre-open auction call in 2010Gaps and the Pre-Open Call Auction skews these results, here’s how 2011 looked like:

NIFTY.volatility.density.2011

The unprecedented absence of a second “hump” in the volatility density plot for 2014 should give pause to investors looking for a repeat of 2014 anytime soon.

Reversion to higher volatility?

If you look at the 50-day volatility over different time-periods, you can observe how volatile volatility is:

NIFTY.volatility.density.50

This year’s observed volatility is closer to last-year’s than to its long-term mean. Here’s how 2015 has panned out so far:

NIFTY.volatility.density.2015

We should expect higher volatility as the initial bull-run wears off and volatility reverts. This will have a ripple effect on pretty much every investment/trading strategy.

Appendix

Year-wise NIFTY volatility density plots (pdf)

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