Cboe and S&P Dow Jones Indices Announce Plans for Cboe S&P 500 Dispersion Index, First Cboe Labs Concept to go to Market
Cboe Global Markets has partnered with S&P Dow Jones Indices to develop the Cboe S&P 500 Dispersion Index, aimed at measuring implied dispersion within the S&P 500 Index. This new index will support investors in understanding portfolio diversification and executing dispersion trading strategies. Additionally, the Cboe S&P 500 Dispersion Index is the inaugural product from Cboe Labs, a new innovation division. Plans include creating a futures product based on this index, pending regulatory review.
- Launch of the Cboe S&P 500 Dispersion Index to improve market participants' understanding of portfolio diversification.
- Creation of Cboe Labs to foster innovation and develop new trading products.
- Collaboration with a leading index provider, S&P Dow Jones Indices, indicates strong market validation.
- None.
- New volatility-related index, jointly developed by S&P Dow Jones Indices and Cboe, is designed to provide representation of implied dispersion for the S&P 500 Index
- Aims to help market participants better understand portfolio diversification benefits and implement dispersion trading strategies
- Index is first concept developed by Cboe Labs, company's newly-formed innovation arm focused on new tradable products and services
CHICAGO and REYKJAVIK, Iceland, Oct. 19, 2022 /PRNewswire/ -- Cboe Global Markets, Inc. (Cboe: CBOE), a leading provider of global market infrastructure and tradable products, today announced plans to collaborate with S&P Dow Jones Indices (S&P DJI), the world's leading index provider, to develop the Cboe S&P 500 Dispersion Index at its global Risk Management Conference (RMC) in Reykjavik, Iceland.
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.
"Cboe has been teaching market participants how to better measure, model and trade market moves through the 450-plus volatility and derivatives-based indices we've created over our nearly 50-year history," said John Hiatt, Vice President, Cboe Labs. "We revolutionized investing with the creation of the VIX® Index, the first index to measure the market's expectation of future volatility — and today, we continue our legacy of innovation with the Cboe S&P 500 Dispersion Index."
"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."
Edwards will join Hiatt at RMC for a discussion and analysis of dispersion, underscoring the strength of Cboe and S&P DJI's long-standing relationship and highlighting the companies' shared commitment to drive innovation through rigorous data analysis and academic research. For decades, the campus-like setting and facilitated networking at RMC has provided Cboe staff with the unique ability to learn from and work closely with industry peers, customers and academics—inspiring the creation of new Cboe offerings that can enhance the trading experience.
In an effort to formalize the value derived from conversations at RMC and other client interactions, the company also announced the formation of Cboe Labs, a new division dedicated to the creation, development and implementation of new ideas.
"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. To learn more about dispersion and correlation, visit www.cboe.com/us/indices/implied
About Cboe Global Markets, Inc.
Cboe Global Markets (Cboe: CBOE), a leading provider of market infrastructure and tradable products, delivers cutting-edge trading, clearing and investment solutions to market participants around the world. The company is committed to operating a trusted, inclusive global marketplace, providing leading products, technology and data solutions that enable participants to define a sustainable financial future. Cboe provides trading solutions and products in multiple asset classes, including equities, derivatives, FX and digital assets across North America, Europe and Asia Pacific. To learn more, visit www.cboe.com.
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