The Guided View within Compass is supported by backtesting across one full year of data, analyzing both the (a) forward returns and (b) volatility profile of 3,500+ US stocks.

Forward Returns

Because Risk Reversal Rank shows where skew is most elevated (towards calls or puts), it can signal the direction of short-term returns.

• Forward returns are highest when Risk Reversal Rank is low (below 0.2)
• Forward returns are lowest when Risk Reversal Rank is relatively high (above 0.6), particularly when IV Rank is relatively high (above 0.6)

Forward Volatility

IV Rank shows where IV sits for a stock relative to its prior year, which can be used to measure the market’s expectation for a stock’s price movement. Volatility is estimated based on the standard deviation of daily returns over a 10-day time horizon.

• Forward volatility is highest when IV rank is high (above 0.8) and Risk Reversal Rank is low (below 0.2)
• Forward volatility is lowest when IV rank is low (below 0.20)