The Bottom Line
- The outbreak of volatility in February, coming after nearly two years of relative calm, came as somewhat of a shock – at least in emotional terms.
- Part of the upset came from intra-day movements of prices – the spread between each day’s high and low.
- The intra-day moves of the Dow Jones Industrial Average (“the Dow”) is a useful example. February 5, 2018 saw a swing of over 1,596 points, nearly three times as large as the previous day’s range, and over 50% larger than the intra-day range on October 10, 2008, in the midst of that year’s global financial crisis.
- But in percentage terms, the record for intra-day moves for the Dow was still made in 2008; the Dow moved just over 12% on October 10, vs. 6.6% on February 5, 2018.
- The CBOE VIX Index (“the Vix”), on the other hand, made its largest intra-day move for the decade, in points, on February 6, 2018 – along with its largest percentage move – 93%.
- The percentage figures for the Vix, however, are particularly misleading because the index itself measures volatility, not just price. That’s why the intra-day high for the Vix was on October 24, 2008 (89.5), not on February 6, 2018 (50.6).
- The bottom line: Volatility isn’t always what it seems. That’s all the more reason to take volatility into account when making investment decisions for the long run, and to make sure that any investment plan is sufficiently diversified.
All data: Source: Bloomberg.