One Size Doesn’t Fit All

When shopping for shoes there’s a need to know what size to purchase or I suppose one could say whatever comes close.

Performances between the U.S. small-cap and large-cap indexes have been quite different so far in 2016.  The small-cap as measured by the Russell 2000® Index (RUT) is down -14.66% compared to the large-cap S&P 500 Index -9.32% (based on closing prices 2/8/16).

RUT’s daily moves have been over 1.00% almost two-thirds of the trading days as illustrated below.1

Managing risks is not a simple task when volatility is rising.  The key is to find an effective hedging strategy offering protection with a non-correlating asset.

CBOE Russell 2000 Volatility Index (RVX)

The CBOE Russell 2000 Volatility Index (RVX) measures the (30-day) expected volatility in the Russell 2000 and carries a negative correlation to the Russell 2000 Index (-.831)*.  RVX has closed higher in the last 7 consecutive trading days and is +46.19% y.t.d.

2*Source: Bloomberg

RVX vs. VIX

Often used as the standard for measuring volatility in the U.S. equity market, the CBOE S&P 500 Volatility Index (VIX) behaves similarly to RVX as highlighted by the graph. 3

With the small-cap. market segment underperforming the large-caps. by over 5% one might take a closer look at using the options & futures based on RVX traded at the CBOE.

For more information on CBOE Russell 2000 Volatility Index (RVX) visit: www.cboe.com/RVX