SEATTLE, WA--(Marketwired - Jan 15, 2016) - With US stocks down sharply in the first five trading days of 2016, measured by an 8% fall for the US small cap Russell 2000® Index, global index provider FTSE Russell studied the relationship between small cap market return and volatility with the help of the Chicago Board Options Exchange.

In 2016 year-to-date as of January 12, while the US small-cap Russell 2000® Index has fallen 8%, the CBOE Russell 2000®  Volatility Index(SM) (RVX(SM)), which measures the expected 30 day implied volatility implicit in the price of near term options on the Russell 2000, has risen 20.1% (from a closing price of 20.6 at the start of 2016 to 24.75 on January 12).

According to experts at the CBOE, there is typically an inverse relationship between US small cap returns and implied volatility, which may be heightened in periods of extreme volatility. The non-correlated nature of the Russell 2000® Index (RUT) and the CBOE Russell 2000®  Volatility Index(SM) (RVX(SM)) is illustrated in the chart below.

Russell Rhoads, CFA, Director of Program Development for the Options Institute at the CBOE:
 "Times of market stress can underscore for market participants the importance of non-correlated asset classes as a means to diversify market exposure. While the Russell 2000 Index has told a negative story for the start of 2016 from a market return index standpoint, the RVX story looks very different from a US small cap market volatility index standpoint. This analysis helps underscore the usefulness of market indexes and futures and options related to these indexes as important tools for long-term investors."

More FTSE Russell Index IDEAs and insights from FTSE Russell index experts can be found on the new FTSE Russell blog.

About FTSE Russell:
 FTSE Russell is a global index leader that provides innovative benchmarking, analytics and data solutions for investors worldwide. FTSE Russell calculates thousands of indexes that measure and benchmark markets and asset classes in more than 80 countries, covering 98% of the investable market globally.

FTSE Russell index expertise and products are used extensively by institutional and retail investors globally. Approximately $10 trillion is currently benchmarked to the FTSE Russell indexes. For over 30 years, leading asset owners, asset managers, ETF providers and investment banks use FTSE Russell indexes to benchmark their investment performance and create ETFs, structured products and index-based derivatives.

A core set of universal principles guides FTSE Russell index design and management: a transparent rules-based methodology is informed by independent committees of leading market participants. FTSE Russell is focused on applying the highest industry standards in index design and governance, and embraces the IOSCO principles. FTSE Russell is also focused on index innovation and client collaboration as it seeks to enhance the breadth, depth and reach of its offering.

FTSE Russell is wholly owned by London Stock Exchange Group. For more information, visit www.ftserussell.com.

© 2016 London Stock Exchange Group companies.

London Stock Exchange Group companies includes FTSE International Limited ("FTSE"), Frank Russell Company ("Russell"), MTS Next Limited ("MTS"), and FTSE TMX Global Debt Capital Markets Inc ("FTSE TMX"). All rights reserved.

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Views expressed by Russell Rhoads are based on information as of January 12, 2016, are subject to change and do not necessarily reflect the views of FTSE Russell or the London Stock Exchange Group. 

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