Author Topic: Market Volatility index  (Read 140 times)

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Offline JohnR

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Market Volatility index
« on: 06/08/2019, 03:59:14 PM »
As the current correction is underway (07-08-2019), I'm reminded once again that the S&P / ASX 200 VIX index is a very good bell weather indicator, after starting to rise on the 28th to 31-07-2019 into new territory.
Would it be good practice to incorporate the VIX index into portfolio setups to warn of rising volatility?
« Last Edit: 06/08/2019, 04:07:19 PM by JohnR »

Offline Dave McCulloch

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Re: Market Volatility index
« Reply #1 on: 07/08/2019, 11:01:36 AM »
Hi John,

The VIX is a measure of volatility and rises as volatility increases. Typicall, an increase in the VIX (volatility)above 20 is associated with downward price movement of the index it is measured against.

Certainly, you can use the VIX reading as a measure of market risk but the main question to answer in relation to that is what actions do you take and when, so that the decisions made are completely objective (mechanical).

The next level of inquiry needs to investigate whether those decisions when executed mechanically over a large sample size provides a positive edge.
As an exercise, it is worth comparing the VIX readings during periods of high market volatility and the status or change in status of it’s underlying benchmark.

This is easy to do by looking at the chart of say the SP500 ($SPX) and seeing if it’s currently in an “open” or “low risk” position by using either the SPA3 Trader or SPA3 Investor signals.

I’ve attached an image of what this looks like, and you can see periods of higher volatility (above 20) on the VIX and the corresponding signals on the benchmark index.
Regards,

David.

Offline JohnR

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Re: Market Volatility index
« Reply #2 on: 12/08/2019, 09:26:43 AM »
Ok point taken close correlation, between the world indexes. Unfortunately there is no ASX VIX comparison with the SPA3 Investor ATR-TS indicator so comparisons is a bit sketchy.
I was using an IRESS  30 min chart in prior post, and my MACD setups in BC overlays where the short. medium and long term set started rising from 1 August through to . Based on this I went to cash on the 2nd in both SPA3 Investor and Trader portfolios. The market took a major hit on Monday 5th. From where I started buying back at much lower price levels.

I note the Market & Sector Risk SPA3 Investor Indicator remains red / high for the majority of the sectors, except for Health Care, Consumer Staples & Communications, at this time. And until such time as the Risk drops I will remain on close watch for profit taking, of which I have made more portfolio gains in those few days than over the 6 month prior period. This is the edge that I have applied. based of the ASX VIX and my MACD setup and 30 min IRESS time frame chart.
And I note the SPA3 System system did not go into high risk until Monday evening, a good few days behind the market; resulting in the portfolio directed to being sold off into a falling broader market on Tuesday 6th. Which could be said that the system does not give you much of an edge in the short term.

Don't get me wrong, I understand the back tested system over larger data sets, giving a longer term edge over buy and hold. It just appears the Investor System hasn't been optimised for very sharp downturn corrections and the opportunities they generate there, which is not much of a volatility edge, when it treats all corrections as generically as high risk. I don't wish to engage you in an intellectual argument about that longer term edge the system is designed and tested for. Just that the proof of my (experimental test portfolio) is evidence enough to follow ASX VIX volatility more directly, and now more so as the VIX is appearing to be in overbought territory a week later.

What I would like to see is the application of the SPA3 Investor indicator being able to be applied to the ASX200 / XAT.ASX and the SP ASX200 Volatilty (XVI / VIX) to enable comparison correlations.

Offline Dave McCulloch

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Re: Market Volatility index
« Reply #3 on: 14/08/2019, 09:25:46 AM »
Hi John

In Beyond Charts you can look up the ASX200 Vix futures using the code $XVI.

It only has open, high, low and close quotes since mid 2018, but you can change the chart to a line chart and that will display a single quote for each day back to 2008.

I've attached a screen shot to illustrate.

You'll be able to compare how the ATR_TS indicator produces signals on the ASX200 index while viewing the $XVI over the same time frame, however the indicator can't be applied onto the $XVI directly.

I hope this helps.

Regards,

David.