Volatility is part of investing be it equities or fixed income. But how volatile are we? And is there any way to measure that?
Yes there is a way to track the volatility of the Index Nifty. INDIA VIX measures the degree of volatility or fluctuation that active traders expect in the Nifty 50 over the next 30 days.
India VIX or India Volatility Index was launched by the National Stock Exchange (NSE) in 2008
VIX has a negative correlation with Nifty. When VIX rises Nifty falls and when VIX falls, Nifty is bullish.
See the chart below. Typically VIX values below 20 are fine. When VIX goes above 20 it is time to tighten your seatbelts.
In March because of the lockdown and COVID, VIX shot up to 60+ levels. Usually VIX shoots up before events like elections etc and cools down soon after the event uncertainty is over. But because COVID uncertainty is unknown VIX remained high for a long time. Currently it has gone below 20. It makes sense to track VIX and if we see an upward trajectory again it will be time to be cautious.