The State of Realized Volatility: Ahead of Key Inflation Figures
Market volatility will be in the crosshairs this week as investors await key readings from inflation reports on the economic record. The important publication of the report on the consumer price index and the producer price index report should shed some clues on the Fed’s tightening trajectory.
Financial players saw a slowdown in market volatility in the previous week, with major averages ending in the green. PriceVol, a proprietary risk indicator generated by ASYMmetric ETFs, described an average daily decline in weekly realized volatility from 6.6 to 6.2.
Volatility is integral to how investors value the market, and PriceVol is an instrument capable of measuring the full volatility landscape reflected in the S&P 500. In addition, traditional readings of the S&P VIX Index (VIX) were also reduced during the week. 14% to $22.79.
Where has the volatility been observed?
Overall volatility has declined as benchmark averages have risen over the past week. The S&P 500 as well as ETFs that mimic its price action such as the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) and the Vanguard 500 Index Fund (NYSEARCA:VOO) ended his losing streak.
From a sector perspective, the Energy (XLE) segment of the market observed the highest level of volatility, as it had a realized volatility level of 6.7. At the other end of the spectrum, the real estate sector (XLRE) saw the lowest level of realized volatility at 2.4.
Communication (NYSEARCA:XLC) market saw the biggest drop in WoW percentage, as it fell 49% from the previous week to 3.6.
Below is a visual representation of the realized volatility status of each sector along with the accompanying rate change:
ASYMMETRIC S&P 500 ETF (NYSEARCA:ASPY) is a fund that was developed from the PriceVol instrument. ASPY operates as a long/short quantitative hedging strategy that seeks to provide investors with a safety net against bear market sell-offs by going net short, while seeking to capture the majority of bull market gains, by going net long .
See below the performance of the six ETFs discussed over several time periods.