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Kensho Stats

Here's how to profit from the spike in volatility

A trader works on the floor of the New York Stock Exchange (NYSE).
Lucas Jackson | Reuters
A trader works on the floor of the New York Stock Exchange (NYSE).

After a quiet summer, volatility is back as oil prices fall and investors weigh the prospect of an interest rate hike in the near term.

Consider Friday's sell-off, which was followed by a large rebound Monday, and a drastic drop Tuesday. Over the past week, the CBOE Volatility Index, a gauge of investors' fear, is now up nearly 50 percent.

So how should you play this trend, if history is any guide?

With data from Kensho, a quantitative tool used by hedge funds to analyze historical trends, CNBC PRO searched for the best trades when the VIX spikes.

Over the last decade, the VIX index has jumped 25 percent or more within a month nearly 40 times.

History suggests that safe haven investments hold up best when markets are gyrating.

Select bond and gold ETFs, for example, recorded positive average returns over these occasions, with the SPDR Gold ETF (GLD) returning about 1 percent on average.

It may not sound like much, but compare that to the record for the S&P 500 during these events: The benchmark traded in negative territory nearly 75 percent of the time, posting a loss of 4.4 percent on average, according to data from Kensho.


But not everything related to gold tends to perform well during these turbulent periods.

Gold miners, for example, often sink along with the broader markets (The Direxion Daily Gold Miners Bear ETF (DUST) dropped about 1 percent when the VIX rose, according to Kensho).

Also on the chopping block were riskier assets like emerging markets and energy.

The major emerging markets ETF, the iShares MSCI Emerging Markets ETF (EEM), for example, has lost more than 6 percent on average, according to Kensho.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.