MartinShkreIi

Equity Risk Premium

Inspired by the article "2020's Best Performing Hedge Fund Warns Of 'Incredible Move' Around The Election" from ZeroHedge:

This script explores the relationship and attempts to find dislocation between equity risk ( VIX ) and high-yield corporate debt risk (VXHYG, The Cboe VXHYG Index is an estimate of the expected 30-day volatility of the return on iShares' High Yield Grade ETF ( HYG ). VXHYG is derived by applying the VIX algorithm to options on HYG ).

The basic logic is (closing price of VIX / closing price of VXHYG) - 1. When equity risk is high and credit risk is low, the value of premium will be high, and vice-versa.

“'Equity volatility is almost inescapably high. Is that a good form of insurance? The payoff profiles are nothing like they were back in January. Whereas in credit, we’re almost back to where we were in January.

I find today the risk-reward profile of credit to be basically among the worst, relative to other things, I’ve seen in my career,' Weinstein said. 'A VIX at 20 used to be quite a feat. Here we are at 30, and the credit market hasn’t blinked.'

As a result of the gaping divergence between the VIX and credit spreads - the two had moved in tandem for years, but in August the two series blew out as the VIX started rising as spreads kept falling - Weinstein has pounced on the trade, betting on vol compression."

When equity risk premium is high, the market may be forming a local top.
When equity risk premium is low, the market may be forming a local bottom.

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nice work!
cheers
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MartinShkreIi tradinghuawei
@tradinghuawei thanks mate, cheers
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