1 Source: Bloomberg L.P. as of September 30, 2014
Important Information
VIX® futures provide a pure play on implied volatility independent of the direction and level of stock prices. VIX futures may also provide an effective way to hedge equity returns and to diversify portfolios. Volatility is the annualized standard deviation of index returns. Standard deviation measures a fund’s range of total returns and identifies the spread of a fund’s short-term fluctuations.
Spot return is the return of commodity spot price or in the presented case, VIX return. Roll yield is the return generated when expiring futures contracts are replaced with new contracts. Correlation indicates the degree to which two investments have historically moved in the same direction and magnitude. An investment cannot be made directly in an index.
The CBOE Volatility Index® (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. The S&P 500® Index is an unmanaged index considered representative of the US stock market. The S&P 500® VIX Short-Term Futures Index utilizes prices of the next two near-term VIX® futures contracts to replicate a position that rolls the nearest month VIX futures to the next month on a daily basis in equal fractional amounts. This results in a constant one-month rolling long position in first and second month VIX futures contracts.
This article was written by Invesco PowerShares Vice President, ETF Product Management, John Feyerer.