Which Stock Index is the Most Volatile

Stock indices are a benchmark for giving a picture of the markets in particular and the economy in general. One of the important parameters to evaluate an index is volatility. What is the most volatile stock index and which is the list of most volatile stock indices in the world? Volatility works both ways. When volatility is low, it makes the index safer and lower on the risk scale. But it also proportionately reduces the opportunities for making profits.

In this segment, we look at the most volatile stock indices in the world along with the implied volatility in the indices over the latest year. Interestingly, in the most volatile stock index list, even the NSE Nifty features, which is not surprising considering the extent of volatility that it has seen in the last year. Let us look in detail at the most volatile stock indices in the world on a regional basis and also how Indian indices rank in the sweepstakes as the most volatile stock index.

Which Stock Index is the Most Volatile One?

Globally, stock market indices are evaluated on two parameters viz. returns and risk. Of course, indices are also evaluated based on the tracking error risk of indices, but that is a more complex area that we will not get into right now. The best way to evaluate the risk of an index is through the calculation of variance or standard deviation. That is the measure we use to measure the volatility of global indices.

 

STOCK INDICES VOLATILITY FOR 2021

US-BASED INDICES

D

points

%

RUSSELL 2000 INDEX (US2000)

14181

149.25

NASDAQ 100 INDEX (NAS100)

8102

122.28

S&P 500 INDEX (SPX500)

21688

99.35

DOW JONES INDEX (US30)

16906

92.91

     

EUROPEAN INDICES

D

points

%

DAX 30 INDEX (DE30)

7828

98.15

AEX INDEX (NL25)

3496

90.44

MIB 40 INDEX (ITA40)

12040

87.21

CAC 40 INDEX (FRA40)

30555

84.26

EURO STOXX 50 INDEX (EU50)

1895

83.33

 

As can be seen the most volatile indices in the US markets are the diversified Russell 2000 and NASDAQ 100. In the European region, the DAX 30 of Germany and the AEX index are among the most volatile. In the Asia Pacific, the Nifty 50 is the most volatile with over 100% volatility. The NSE Nifty volatility was followed by the Chinese index and Nikkei Index.

How many stock indices are there in India?

If you add up the 3 stock exchanges viz. NSE, BSE, and the MSEI, you have a total of 70 indices. Here is a list of indices across segments.

BSE INDICES NSE INDICES
S&P BSE Sensex NIFTY 50
S&P BSE SENSEX 50 Index NIFTY NEXT 50
S&P BSE Small cap NIFTY Midcap 100
S&P BSE Midcap NIFTY MIDCAP 50
S&P BSE SmallCap Select Index NIFTY Smallcap 100
S&P BSE Midcap Select Index NIFTY 100
S&P BSE Large Cap NIFTY 500
S&P BSE All Cap NIFTY AUTO
S&P BSE 100 NIFTY BANK
S&P BSE 200 NIFTY COMMODITIES
S&P BSE 500 NIFTY CONSUMPTION
S&P BSE BANKEX NIFTY ENERGY
S&P BSE Auto NIFTY FIN SERVICE
S&P BSE Basic Materials NIFTY FMCG
S&P BSE Capital Goods NIFTY INFRA
S&P BSE Consumer Discretionary NIFTY IT
S&P BSE Consumer Durables NIFTY MEDIA
S&P BSE Energy NIFTY METAL
S&P BSE Finance NIFTY MNC
S&P BSE FMCG NIFTY PHARMA
S&P BSE Healthcare NIFTY PSE
S&P BSE India Mfg NIFTY PSU BANK
S&P BSE Industrials NIFTY PVT BANK
S&P BSE IPO NIFTY REALTY
S&P BSE IT NIFTY SERV SECTOR
S&P BSE Metals INDIA VIX
S&P BSE Oil and Gas NIFTY GROWSECT 15
S&P BSE Power NIFTY50 VALUE 20
S&P BSE PSU NIFTY DIV OPPS 50
S&P BSE Realty NIFTY MID-LIQ 15
S&P BSE Teck NIFTY100 QUALITY 30
S&P BSE Telecom  
S&P BSE Utilities MSEI INDICES
S&P BSE Dividend Stability Index SX-40
S&P BSE Enhanced Value Index  
S&P BSE Low Volatility Index  
S&P BSE Momentum Index  
S&P BSE Quality Index  

Data Source: NSE and BSE

As you can see, the indices are purely the equity indices of the two stock exchanges. The Nifty and the Sensex of the NSE and BSE are the two of the most popular generic indices. Other indices are capitalization-weighted and include small-cap, mid-cap, and large-cap as well as multi-cap indices. Then there are sectoral indices in both the exchanges as well as thematic indices.

What are Global Indices?

You can understand global indices as a hypothetical portfolio of investment holdings that represents a segment of the financial market or the global indices market. The calculation of the index value is derived from the prices of the underlying stocks or assets in the index. Remember, the global indices market consists of stocks, bonds, commodities, etc. Here we will focus more on the global indices market for stocks. There are different ways in which indices can be weighted. For example, in the global indices market, their indices are based on market-cap weighting, revenue-weighting, float-weighting, and fundamental-weighting. Most of the leading global indices in the world typically tend to be market cap and free-float weighted.

Globally, different indices are followed by investors. In the US, the three most popular stock indexes for tracking the performance of the US market are the Dow Jones Industrial Average (DJIA), S&P 500, and NASDAQ Composite Index. The NASDAQ is the OTC market that trades in high technology sectors like IT, e-commerce, biotechnology, etc. Similarly, in bond markets, Bloomberg Barclays is a leading provider of market indexes with the Bloomberg Barclays U.S. Aggregate Bond Index being a popular benchmark. You cannot directly invest in an index so we use proxies like index funds, index ETFs and index futures but we will come back to that later.

We can quickly summarize our understanding of global indices as under:

  • Global indices provide a broad representative portfolio of investment holdings of an asset class.
  • Methodologies for constructing global indices vary but most of the indexes are based on market cap weighting and free float weighting
  • Global indices act as benchmarks to gauge the performance of market segments and also as a barometer of the economic robustness
  • More importantly, indexes can be used as a proxy for a passive portfolio in the form of index funds or index ETFs
 
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