Complacency Index related to Volatility

FeaturedLeave a comment

Complacency Index : Earned Value (EV) MSCI World Index / Volatility Index (VI)

It indicates the divergence between Index level and Volatility High Complacency Index often followed by the correction in the equity market

Typically Implied Volatility increases when investors believe that the Asset price will decline and markets may turn bearish or Vice-Versa

Fear Guage : CBOE VIX : Barometer of Volatility trading @9.43 nearly 54% lower than its 20 year average 01Sept2016 VIX is directly proportional to Volatility

VIX : It is the measure of the Investor perception about the risk of sharp swings based on the Option Proces It is 13.04 lowest since 11Dec2014

Q: Low Implied Volatility -> Option prices / premium much cheaper

VIX Computation : Best Bid and Ask quotes of Out of Money near and mid-month Nifty Option Contracts

Q What is Implied Volatility ?

BETA : Volatility of a security or stock in relation to the market Volatility (Dispersion in Maths) Measure is the Standard Deviation from the Mean Regardless of the overall stock price move state of the stock market Beta measures provides the volatility of the stock based on the metric

Beta <1 Less Volatile; =1 Volatile ; >1 Highly Volatile

Sensex : MSCI Emerging Market moved from 0.736 to 0.824 High Beta Stock (Highly Volatile) doesn’t mean High Risk Other parameters to seek before selecting the High Beta stocks (because of the Bullish trend, High Beta stocks are good bets) {Mid and Small Cap Stocks are good bets}

  • 1 Return on Equity (ROE)
  • 2 Growth Rate
  • 3 Debt Levels
  • 4 Order Book
  • 5 Profit margins

 

GDP Ratios

1 Tax to GDP Ratio : Taxes are related to economic activity.

Tax revenues fall drastically during the period of the global financial crisis

Example : GDP of a nation is $10 Trillion

Tax revenue is $2 Trillion

Hence Tax GDP Ratio is 2/10 = 20%

Rising Tax/GDP ratio indicates the growth in the Economic activity

2 Debt to GDP Ratio : Indicates the economy that produces the and sells goods and services sufficient to payback the debts without incurring the further debts

Debt: In crores of rupees (unit of currency)

GDP per annum  time units of years

This indicates the number of years required to pay off the debt * if all of the GDP is devoted to the Debt payment

90% refers to the debt that can be cleared from the 90% of year’s GDP to pay off

3 Market Cap to GDP Ratio 

This is the new ratio as per the Warren Buffet’s (2001 address) Value Indicator

This is considered as the single best measure where the valuations stand @ at any given point of time.

Also known as Buffet Indicator

Overall market is undervalued or Overvalued