Forums  > Basics  > Uncorrelated volatilities  
     
Page 1 of 1
Display using:  

Mistro


Total Posts: 4
Joined: Aug 2018
 
Posted: 2018-10-03 06:42
Hi everyone. I am looking to implement a short gamma strategy across many un-correlated assets (in vol sense). I have built a covariance matrix comparing the relationship of historical volatilities across each asset. So far I am looking at bonds, equities, gold and oil. Gold has the lowest correlation of .33 to equities. I was wandering if you guys could suggest any assets whose volatility would be negatively correlated to equities vol (or at least close to 0).

Thanks

men lie, women lie, numbers don't

frolloos


Total Posts: 43
Joined: Dec 2007
 
Posted: 2018-10-03 11:38
First you write that gold has a low correlation to equities, then you ask which vol has low correlation to equities vol. Which is it? Are you looking at correlation between assets or correlation between vols of assets? Or both for some reason?

Mistro


Total Posts: 4
Joined: Aug 2018
 
Posted: 2018-10-03 18:49
hey frollos, I meant to say:
*gold's volatility has a low correlation to equity volatility of .33. I am looking for low correlations in volatility. I might have to venture into the FX space and agriculture to find low vol correlations.

men lie, women lie, numbers don't

frolloos


Total Posts: 43
Joined: Dec 2007
 
Posted: 2018-10-04 15:01
still not clear to me why you are looking at low correlation between vols. isn't low correlation between assets sufficient? afterall if two assets are strongly correlated and markets get nervous, both assets would likely head south and likely both their vols would be high. so if the assets are uncorrelated there is a good chance their vols are uncorreltaed as well. but maybeI am missing something.

so you could do a diversified short gamma strat by selling options on uncorrelated assets. another popular strat is a dispersion strategy.

Mistro


Total Posts: 4
Joined: Aug 2018
 
Posted: 2018-10-04 19:47
Just because the returns have low correlation, does not mean the volatility will have low correlation. For example if I were short gamma on Gov bonds and Equity. When the market sells off, you will have increased volatility to the upside in bonds and increased volatility to the down side in equity. There for I will lose on both my short gamma positions. Same with Gold.


men lie, women lie, numbers don't

frolloos


Total Posts: 43
Joined: Dec 2007
 
Posted: 2018-10-05 02:07
i wrote uncorrelated assets which is not the same as positive or negative correlation. also, when the market really sells off you probably dont want to be short gamma anyway.

Previous Thread :: Next Thread 
Page 1 of 1