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EuroCurrency Volatility Index (EVZ) at Lowest Level Since March 2008, Diverges from VIX

Thu, Nov 1, 8:12 AM ET, by Bill Luby

Since its launch in August 2008, the CBOE EuroCurrency Volatility Index (ticker EVZ, sometimes known simply as the "euro VIX"), which is based on the FXE ETF, has toiled in relative obscurity compared to some of the more famous volatility indices.

Given all the fears about the European sovereign debt crisis over the past few years, I find the lack of interest in EVZ to be surprising. After all, in thinking about the euro zone one of the most basic questions has been whether or not the euro will survive.  Further, outside of the U.S. at least, the future of the euro zone is still considered to be the biggest risk to the stock market.

With all this in mind, I was looking at EVZ data this evening and discovered that today marks five years since the beginning of the historical EVZ data provided by the CBOE (reconstructed data fills the gap from November 2007 to the August 2008 launch.)

The chart below shows the history of closes in EVZ (blue line), as well as comparative closing prices for the VIX (red line.) I have annotated the chart to highlight two pieces of information:

  1. The last time that EVZ closed lower that it did today (8.55) was in March 2008, just before Bear Stearns collapsed and was sold to JP Morgan (JPM)
  2. The recent divergence between a falling EVZ and a rising VIX, which dates from the middle of September, is unusual, particularly given the length of the divergence

So"Žis EVZ understating the risk to the euro or is the VIX overstating the risk to stocks? Is it possible that these two measures of risk can be moving in opposite directions and both be right?

Related posts:

[source(s): CBOE]

Disclosure(s): none



SDI Glossary: "CBOE" Definition
SDI Glossary: "price" Definition
SDI Glossary: "Equity" Definition
SDI Glossary: "Risk" Definition
SDI Glossary: "VIX" Definition
SDI Glossary: "Volatility Index " Definition
This Article's Word Cloud:   August   CBOE   Cliff   Concerns   Euro   European   Evolution   Fear   First   Fiscal   Future   Given   Index   Poll   Risk   Stearns   Thinking   Volatility   With   about   annotated   based   between   chart   crisis   data   dates   debt   divergence   euro   evening   from   launch   line   lower   mind   opposite   past   quot   reconstructed   risk   sovereign   surprising   that   thinking   this   today   which   years   zone

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