Cboe, S&P Dow Jones Indices unveil plans for Cboe S&P 500 Dispersion Index
Cboe Global Markets, a leading provider of global market infrastructure and tradable products, today announced plans to collaborate with S&P Dow Jones Indices (S&P DJI) to develop the Cboe S&P 500 Dispersion Index.
For a well-diversified portfolio, dispersion is a measure of the spread of constituent returns over a defined period, such as a month. In practice, dispersion measures both the opportunity set for individual security selection within a portfolio, as well as the potential diversification achieved by their combination. Akin to the way that the Cboe Volatility Index® (VIX® Index) represents implied volatility of the S&P 500, the Cboe S&P 500 Dispersion Index is intended to represent the implied dispersion among S&P 500 constituents over a 1-month horizon, based on the prices of single stock and index options.
“Dispersion is recognized as one of the fundamental metrics of market risks. Unlike related measures of volatility, there hasn’t yet been a simple, tradeable, and standardized index that enables market participants to hedge and express their views on dispersion in the U.S. equity markets,” said Tim Edwards, Global Head of Index Investment Strategy at S&P Dow Jones Indices. “We are excited to collaborate with Cboe on the development of the Cboe S&P 500 Dispersion Index, to bring more transparency to the risk and opportunity set in the world’s most liquid equity benchmark.”
“Driven by constant input from our customer base, Cboe Labs is a place where we research, test and iterate as rapidly as possible with a singular goal— to create value-add, disruptive, tradable products and services,” said Rob Hocking, Senior Vice President and Head of Cboe Labs. “Cboe Labs builds on our history of producing many ‘firsts’ for the market and the ongoing dialogue we have with industry peers and regulators on the issues impacting the markets.”
The Cboe S&P 500 Dispersion Index is the first idea from Cboe Labs that will become reality. Cboe plans to develop a futures product on the index to be listed on Cboe Futures Exchange, subject to finalization of the methodology and regulatory review.