Earlier this week I posted an item, Market Volatility in Context, which examined the inverse correlation between the S&P 500 and the VIX since 2007. I received several requests for a longer timeline, one that would show their relationship during the previous bull/bear cycle.

These two charts show the pair going back to 1990, the date of earliest VIX data available from Yahoo Finance. The first chart has the conventional overlay. The second chart inverts the VIX values, which helps us see more clearly the greater degree volatility and the fact that the VIX occasionally leads the S&P 500. See the earlier post for an explanation of the color-coded left axis.

I should point out that the VIX has undergone some important changes since 1990. The details are too complex for this brief update, but an excellent overview can be found in the Wikipedia VIX entry. The changes made in 2003 and beyond no doubt contributed to the dramatic increase in VIX volatility during the Financial Crisis of 2008.