Will oil continue to drive volatility in 2016?

Perhaps the biggest financial story of 2015 has been the continued collapse of oil prices, which has been a noticeable drag on the stock market. And some argue that the oil market will continue to drive stock movements in the year ahead.

"Oil is the meat of the volatility sandwich here, and I don't think that changes," Max Wolff of Manhattan Venture Partners said Wednesday on CNBC's "Trading Nation."

"I think the first half of 2016 is sort of a heavy-duty repeat of the second half of 2015 on the vol side," Wolff continued, "although I do think you start to see a bottom in and a rebuild going into the second half of 2016."

For Societe Generale macro strategist Larry McDonald, "the consistent relationship between lower oil prices and higher U.S. equity market volatility" has been "the story of 2015."

Any rally in equities is "suspect" without "a follow-through in oil," said McDonald. "So if oil doesn't follow equities higher and rolls over, get long volatility and short the S&P 500."

Read MoreVolatility is spreading like a virus: Strategist

Over the past year, the CBOE Volatility Index (which uses options prices to measure expected volatility) has indeed enjoyed a daily correlation of -0.24 with oil, which indicates that a fall in oil should tend to lead to a rise in expected volatility, and vice versa.

However, that does not appear to be too far out of line with five-year and 10-year averages for the correlation between oil and the volatility index. And in fact, the relationship between oil and the S&P 500 itself is a bit tighter.

Over the past five years, the daily moves in oil and in the S&P 500 have experienced a correlation of 0.35. Correlations are measured on a scale from -1 to 1, with 0 indicating no relationship and 1 indicating perfect correlation.

Read MoreCrude oil won't recover until late 2016: Analyst


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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