Volatility Weighted Sentiment

Volatility weighted sentiment adjusts standard sentiment scores by factoring in the intensity of price fluctuations at the time the sentiment was recorded. High volatility periods often amplify the emotional impact of news, making sentiment indicators more sensitive and prone to noise.

By weighting the sentiment by the current realized volatility, analysts can filter out weak signals that occur during quiet market conditions. This approach helps identify high-conviction sentiment shifts that are more likely to result in sustainable price trends.

It ensures that sentiment data is contextualized within the broader risk environment of the derivative market. This technique is essential for traders who operate in environments where price shocks are frequent and sentiment can flip rapidly.