EQUAL-WEIGHT 5-SIGMA MOVE

Does the macrotourist warning about 5-sigma moves apply to relative index outperformance?

Yesterday I saw a headline from Merrill Lynch that stated the 2-day return of the S&P 500 equal-weight index versus the S&P 500 cap-weighted index was a 5-sigma move.

Now, regular readers of the ‘tourist know the problem with 5-sigma moves (they don’t stop at 5-sigma), but the Merrill note got me thinking - does this rule also apply to these sorts of re…