U.S. Stock market stress
Bullish
U.S. Derivative market stress
Bearish
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Market volatility prediction
Stock market volatility refers to the daily variation of stock prices. For years we at Huygens have been using and improving our stock market volatility predictors to drive our active investment portfolios. Huygens’s active portfolios are designed to capture stocks’ gains in times of low volatility, and to defend against losses when volatility is increasing.
History shows that stock market periods with the worst volatility drive the majority of investment losses, as seen in the chart below. So it should be possible to avoid some of the largest losses if volatility can be predicted with reasonable certainty.
Analysis divides the timeframe 1992 - 2018 into 5-day periods, and ranks them by their volatility of daily S&P index change (dividends excluded). Periods are grouped into deciles from lowest volatility to highest.
It’s often (but not always) possible to predict whether the next trading day is likely to have low or high volatility. The chart below shows how strongly volatility persists from one 5-day period to the next.
Analysis divides the timeframe 1992-2018 into 5-day periods, plotting each period’s S&P 500 index volatility on the x axis, against the volatility of the next 5-day period on the y axis.
Huygens’s volatility prediction signals
Our proprietary volatility prediction signals use volatility persistence, plus S&P 500 derivative instrument pricing and other stock market metrics as inputs. They look for 4 key conditions in investor sentiment:
Strongly bullish sentiment
Extremely bearish sentiment
Sentiment trending more bullish
Sentiment trending more bearish
We update them daily and use them to actively reposition our active equity and active derivatives portfolios, aiming to protect against risk of losses. The signals will typically switch between bullish and bearish positioning around 10-20 times per year.
Learn more about our active stocks portfolios →
Learn more about our active derivatives portfolios →
We would be delighted to speak with you more about our signals and how we use them to manage our active portfolios. Just click here to schedule a time to speak with us.