By now, you've probably heard that the stock market suffered its worst start to a year in history. Going back to the year of SPX's inception in its company form , the next largest decline was a 5.

Stock Market Volatility In Perspective | Seeking Alpha

Additionally, has the potential to be far more volatile than In fact, as shocking as it may be to hear this, was actually pretty tame.

The CBOE Volatility Index VIX did spike above 50 in August. However, the VIX measures implied volatility, which is the market's estimation of future short-term volatility.

Basically, traders and investors panicked because they hadn't seen a correction in several years. The sudden scramble for protection in the form of SPX put options caused a super-spike in the VIX. Instead of implied volatility, I want to measure how large and dispersed the actual price changes were over the course of the entire year.

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The chart below shows annual realized volatility for the SPX since To compute realized volatility, I'm taking the standard deviation of the daily price returns for each year. With a standard deviation of returns of just 0.

QE may not benefit the real economy all that much, but it does artificially suppress volatility.

Putting Volatility in Perspective - Blue Bell PWM

The Fed's third round of bond buying, QE3, ended in October As you can see, was more volatile than , , or However, 's realized SPX volatility was still below the long-term average. Without QE in , it wouldn't surprise me at all if this year was as volatile as , which had a standard deviation of returns of 1. Not only does market volatility create opportunities to profit from dislocations, but it also increases the likelihood we'll make emotional decisions at inopportune times.

Diversification helps us dampen our portfolios from volatility - and it reduces the chance we'll panic and sell stocks after a big stock market decline.

Investors with Treasuries in their portfolios know exactly what I mean during these early days of Stock Market Volatility In Perspective Jan.

By Alan Gula By now, you've probably heard that the stock market suffered its worst start to a year in history.

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