InvestorQ : Is the VIX number related to the level of the markets?
sarah Leo made post

Is the VIX number related to the level of the markets?

Arusha Ray answered.
3 years ago

It has been observed that the relationship between the VIX and the market index has been negative globally and India has exhibited similar trends in the last few years. A rising market is normally accompanied by falling VIX and a falling market is normally accompanied by a rising VIX. There are the following key take-aways…

When the Nifty has been on a long term uptrend as we saw between Feb 2016 and January 2018, the Nifty has typically been at subdued levels of 10-13.

In such cases, the intermittent corrections in the Nifty have been marked by sudden spikes in the VIX index.

Sharp spike in VIX often acts as a lead indicator of a likely correction in the market whereas a tepid VIX is an indication that any correction will be limited

Under normal market conditions the historical trend line of the VIX works quite effectively and can be bought or sold into within this range to get the best results in trading.

VIX has been a fairly reliable gauge of the market mood across world markets and India has been no exception. A better understanding of the underlying methodology of the VIX and its interpretation goes a long way in putting the gauge to better use.