c16rl asked:
I am a bit confused about the two…
I am a bit confused about the two…
The RSI deffinition is: A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset.
The VIX definition is :a popular measure of the implied volatility of S&P 500 index options. A high value corresponds to a more volatile market and therefore more costly options, which can be used to defray risk from volatility
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The VIX reflects near term market expectations for volatility so it is forward looking to an extent, it uses a weighted average of the spreads and pricing of the S&P 500 options over a range of strike prices for a given 30 day period.
The RSI is a relative strength index, it simply looks at the number of days the market closes up versus closes down as a ratio. It’s looks to track the velocity and magnitude of price movements of an index.
Basically the VIX measures volatility which usually reflects the emotions of the market place in the near term while RSI is simply a technical indicator of market momentum, if it appears the market price moved up rapidly then conditions are considered overbought which would be a sell sign and vice versa on oversold conditions.
There are a lot of differences.
RSI is based on the past changes of a price. VIX is based on the anticipated future changes of a price.
RSI is directional, used to predict if the future price is likely to go up or down. VIX is not directional. VIX measures how volatile the price is likely to be in the future, not if it is expected to go up or down.
When a stock price goes up it you usually see VIX decrease and RSI increase. When a stock price goes down you usually see VIX increase and RSI decrease.
RSI can be calculated with any price, including individual stocks and indexes. VIX is only calculated with the S&P 500. (There are other volatility indexes based on other stock indexes, but they are not called VIX.)