Stoxx Limited has launched the Eurostoxx50 Volatility-Balanced index, a new index aiming at providing improved risk-adjusted returns relative to the Eurostoxx50 benchmark by replicating a hypothetical portfolio that combines a base investment into the Eurostoxx50 index with an investment into equity volatility, using the VStoxx Short-Term Futures Index. The index has been exclusively licensed to Barclays Capital to be used as an underlying for investment products.
Hartmut Graf, chief executive officer at Stoxx, said the new index will be a valuable hedging tool in volatile environments as equity volatility historically shows negative correlation to the underlying equity market.
"With the prospect for continued macro uncertainty in Europe, the Eurostoxx50 Volatility-Balanced Index allows investors to keep upside potential while mitigating possible equity losses with a single investment allocating dynamically to both European Volatility and European Equity," said Benedict Redmond, director in equities and funds structuring at Barclays Capital.
The Eurostoxx50 Volatility-Balanced Index dynamically changes allocation to equity and volatility based on the prevailing market environment. The index will increase its exposure to volatility during unstable periods, and conversely will lower its exposure during more stable or up-trending markets. The prevailing volatility environment is determined by comparing the market expectation of short-term volatility to the actual realised volatility in that period.
The VStoxx Short-Term Futures Index is an investable volatility index that measures the returns from a rolling investment made into the first two VStoxx futures contracts traded on Eurex. The Eurostoxx50 Volatility-Balanced Index is rebalanced daily and calculated at the end of each trading day. The index is available in euro.