Alpha Exchange

On my mind is correlation. There are plenty of financial market correlations, both implied and realized. In equities, we talk a good deal about the correlation implied by the relationship between S&P 500 index implied vol and the implied vol on the stocks within the index. That’s been low, to put it mildly. How about the correlation between the dollar and SPX? A signature aspect of the recent risk event was a weaker dollar, even as rates rose and the VIX rose while the SPX swooned.A correlation that gets little attention is that between an asset and its implied volatility. We know that - with only rare exceptions, when the SPX rises, the VIX falls. The correlation runs deep, about negative 80% or so. But for select other assets - and this is the main point of my little talk here - the correlation between the price and the implied volatility - is often actually positive. We call them SUVU, “stock up, vol up” assets. SUVU is that compelling financial trait of an asset that leads to substantial option tradin