S&P 500 vs. Stock Volatility Ratio

The S&P 500 volatility ratio indicator compares the volatility of a stock with the volatility of the S&P 500 index. The ratio is calculated by taking the N-bar volatility of the analyzed stock and dividing it by the N-bar volatility of the S&P 500 index.

Here, the standard deviation is used as a measure of the volatility. Of course, you can update the indicator and use other volatility measures such as:
Historical High-Low Volatility: Parkinson
Garman-Klass Volatility Estimator
Rogers-Satchell Volatility Estimator
Yang Zhang extension of the Garman-Klass Volatility Estimator


Interpretation:

A result above 1 tells us that the stock's volatility is higher than the index's volatility. But the most important thing here is to compare the evolution of the ratio.

The indicator name is "SIVolRatio". It uses "^GSPC" symbol to reference the S&P 500 index data. If you want to update the symbol name or use another index to compare volatility, select "Tools -> Create Function", select the indicator then update the first line by setting the proper symbol name.


Example of usage:

I use this ratio as a buy rule in one of my trading systems.

Here is an example on how to implement this volatility ratio in a trading system:

rt = SIVolRatio(250);
buy = comp(perf(rt, 25), "rank", 1, close > 2) <= 5;
sell = month() != ref(month(), 1);

The first line calculates the S&P 500 volatility ratio
The second line ranks all stocks by the performance of the ratio during the previous 25 bars. The top 5 stocks that had the highest ratio increase will be bought by the system.
The third line instructs QuantShare to sell any position at the beginning of a new month

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