This Week in VIX – 3/28/2014

Last week both the S&P 500 and VIX were lower.  It is well known that the historically the relationship between VIX and the S&P 500 means that the two indexes should move in opposite directions.  The price action resulted in an email question asking if the recent week over week action is an indication that stocks are going higher.  That prompted some digging into the numbers.  The table below is a summary of relative weekly price action between the S&P 500 and VIX since January 2000.

VIX vs SPX

There are 742 weekly observations and those that can do some quick math may notice that the numbers do not add up to 742 nor do the percentages add up to 100%.  That is due to there being three weeks where VIX was unchanged on the week.  What are the odds of that?  Actually, based on history, the chance of an unchanged VIX on a week over week basis is 0.04%.  The important number for today is that there have been 69 instances of both VIX and the S&P 500 losing value over the course of the same week.  I focused on that and found that 30 of the previous 68 instances of both dropping resulted in the equity market being higher the following week.  So a little less than 50% of the instances where VIX and the S&P 500 dropped on the same week the S&P 500 closed the following week higher.  So basically, both moving lower last week isn’t much of an indication of what is to come over the near term.  Sometimes the answer to a question is a non-specific response and that is the result I got checking out VIX and the S&P 500 being in sync to the downside.

VIX