This week's chart tracks the ratio of the average S&P 500 stock's three-month implied volatility to the index's own, going back to 1995. Past spikes topped out near 2.2 to 2.4. Today's reading sits near 2.7, the widest gap in three decades.
Here is why it matters. Index-level volatility has stayed relatively subdued, yet the average stock is swinging far more than the index itself. That gap is really a story about correlation. When stocks trade on their own drivers rather than moving together, whether from sector rotation or stock-specific news, their moves partly offset inside the index and the headline stays quiet, even as the action underneath is intense.
When dispersion runs this wide, the environment tends to reward stock selection more than simply owning the index. It is the same broadening in participation, seen from a different angle.
Source: Goldman Sachs Global Investment Research