**SKEW measures is the degree of assymetry and risk aversion that is not already reflected in VIX**. By the very construction SKEW index is not redundant to the VIX.

If we apply SKEW in combination with VIX to market analysis (for example using it as technical indicator) we can see some interesting patterns. I separate SPX returns into 4 categories and calculate annualized returns (I assume everyone knows the importance of using geometric average returns for evaluation of long-term strategies)

Regime | Arithmetic average | Geometric average | Sharpe ratio |

Low VIX Low SKEW | 1.9% | 1.3% | 0.18 |

High VIX Low SKEW | 12.3% | 9.5% | 0.49 |

Low VIX High SKEW | 11.3% | 11.3% | 1.07 |

High VIX High SKEW | 5.2% | 2.7% | 0.23 |

Right now we're in the Low VIX High SKEW regime, which can be considered a bullish signal. This is just the basic way of using SKEW index, more complicated indicators can be developed. For example Bollinger bands indicators seem to work reasonable well. In the next skew post I'll examine what SKEW means for option traders.

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