GOOG VIX - Useful or more Clutter?

Most traders are familiar with the VIX index as a measure of volatility for the S&P500 index.  In theory, as volatility increases the S&P500 should move lower. If volatility decreases (in theory) the S&P500 should move higher.  However, sometimes the relationship is stronger than others. 

Recently a GOOG volatility index was created. Depending on your software vendor the symbol is VXGO or VXGOG.  Now the question is can you use this indicator like the S&P500 VIX? let's take a look....

Below is a chart plotting GOOG and VXGO. As the chart shows, there is an inverse relationship but this relationship can be weak at times.

 

goog8

 Compare the GOOG relationship with that of the S&P500 and you will see that the S&P500 VIX relationship is much stronger.

S&P500 VIX

What does this all mean for the trader of GOOG? should you use the VXGO to trade GOOG? 

That is up to you, but I would suggest that while there is a negative relationship, it is somewhat weak and not consistent.  Traders might use the index when it is correlated but don't count on the index to be a good leading indicator of the movement of GOOG stock.

 

 

 

 

 

 

 

 

 

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