Last week the Russell 2000 moved lower in line with the large cap focused S&P 500, as the RUT was down 1.02% compared to a 0.99% drop in the S&P 500. One method analysts use to gauge small cap risk relative to large cap risk is by comparing the relative levels of VIX and RVX (CBOE Russell 2000 Volatility Index). The chart below shows the daily close for RVX divided by VIX from the beginning of 2014 through Friday along with the average ratio of 1.34 highlighted on the chart.


As all stock watchers know, the Russell 2000 lagged the S&P 500 in 2014.  The results of this underperformance was RVX remaining at elevated levels relative to VIX, at least until the equity market pulled back in October. On October 15, 2014 RVX closed at 25.49 and VIX closed at 25.27, practically in line with each other. Since then the S&P 500 has gained 11.74% while the Russell 2000 is 16.72% higher. Currently the RVX / VIX ratio stands at 1.21, slightly lower than the average for a little over 15 months which still shows less concern about small cap stocks despite the relative Russell 2000 outperformance over the past few months.