Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
Blog Home
Bob Carey
Chief Market Strategist
Click for Bio

Follow Bob on Twitter Follow Bob on LinkedIn View Videos on YouTube

  Volatility vs. Stock Returns
Posted Under: Conceptual Investing
Supporting Image for Blog Post

View from the Observation Deck  
  1. The Chicago Board Options Exchange (CBOE) SPX Volatility Index (VIX) uses S&P 500 Index options activity to gauge investors' expectations of volatility. It represents a 30-day measure. 
  2. The VIX Index is often referred to as the "fear index" by the financial media. Aside from 2008 (financial crisis), the VIX Index has demonstrated it can fluctuate dramatically on an intra-year basis without negatively impacting the performance of the S&P 500 Index (see 2003, 2009 & 2010 in table). 
  3. From 2003 through 2018, the average reading on the VIX Index was 18.63 (not shown in table), according to data from Bloomberg. Over that same period, the average annual total return for the S&P 500 Index was 8.96%, according to Bloomberg. 
  4. For comparative purposes, from 1926-2018 (93 years), the average annual total return posted by the S&P 500 Index was 9.99%, according to Ibbotson Associates/Morningstar. 
  5. While the average reading for the VIX Index was just 16.62 in 2018, below its 18.63 average from 2003-2018, the S&P 500 Index posted a total return of -4.38%. 
  6. Looking at the high, low and average data points in the table for 2018 would not shed light on the fact that the S&P 500 Index registered two corrections (Q1'18 & Q4'18) involving a price decline of 10.00% to 19.99%.  
  7. Volatility was uncharacteristically low in 2017. It normalized in 2018. While it is a tool that traders may take notice of, it is not something investors should sweat, in our opinion.   
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance. The VIX Index (The CBOE SPX Volatility Index®) estimates expected volatility by averaging the weighted prices of S&P 500 puts and calls over a wide range of strike prices.

Download a PDF of this post, please click here.
Posted on Tuesday, February 5, 2019 @ 2:09 PM • Post Link Share: 
Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
Market Commentary and Analysis
Market Commentary Video
Weekly Market Commentary
Weekly Market Watch
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email

US Stock Market Ended February 1, 2019
US Economy and Credit Markets Ended February 1, 2019
The Recent Correction And Subsequent Rebound In The S&P 500 Index
When Less Can Potentially Bring More
US Stock Market Ended January 25, 2019
US Economy and Credit Markets Ended January 25, 2019
Passive vs. Active Fund Flows
FDA Drug Approvals Hit All-Time High In 2018
US Stock Markets Ended January 18, 2019
US Economy and Credit Markets Ended January 18, 2019
Skip Navigation Links.
Search by Topic
Skip Navigation Links.

The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2023 All rights reserved.