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What Is the Volatility Index Saying About Jewelry Sales?

Here's an interesting correlation for you: International Business Machine's retail analytics practice has uncovered a strong connection between the CBOE Volatility Index and jewelry sales — and it suggests sales will be strong this holiday.

Two women look at a jewelry display in a luxury shopping mall in Shanghai. Following in the footsteps of Japan, China has become the world's second-largest consumer of high-end fashion, accessories and luxury goods.
Phillipe Lopez | AFP | Getty Images
Two women look at a jewelry display in a luxury shopping mall in Shanghai. Following in the footsteps of Japan, China has become the world's second-largest consumer of high-end fashion, accessories and luxury goods.

The CBOE Volatility Index — known as the VIX, or Fear Index — measures the volatility of the S&P 500 stock index.

After tracking the volatility index over time, IBM retail analytics leader Micheal Haydock found that an increase in the VIX has correlated with an increase in jewelry sales two months later.

Based on this finding, IBM is forecasting jewelry sales will rise 7.7 percent to $2.659 billion in November. In December, sales of jewelry are predicted to be up 4 percent from December 2010, or $5.458 billion.

This relationship is somewhat counterintuitive as one might expect a volatile stock market, with big swings up and down, to increase fear and dampen demand for nonessential items and luxury goods such as jewelry.

"This correlation — jewelry sales rising two months after big stock market swings — is highly unusual and bears watching," Haydock noted. "If the trend continues, it could enhance the work we do in helping clients improve the efficiency and impact their marketing and advertising programs."

CBOE Volatility Index and Jewelry Sales

Correlations:
Jewelry to VIX
2008 to Present
2009 to Present
2010 to Present
2011 to Present
Month to month 0.052 0.008 -0.252 -0.145 -0.079
Lagged 2 months 0.163 0.161 0.047 0.372 0.714
Lagged 4 months 0.053 -0.116 0.016 0.269 0.369
Lagged 6 months 0.011 -0.118 -0.045 0.122 -0.107
Source: IBM analysis

The chart above measures the correlations between the CBOE Volatility Index (VIX) and sales of jewelry in the U.S. A correlation of greater than 0.5 is considered to be statistically significant. The correlation for 2011 to date is 0.714.

Questions? Comments? Email us at consumernation@cnbc.com. Follow Christina Cheddar Berk on Twitter @ccheddarberk.

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