Go offline with the Player FM app!
Correlation, Crowding and Convexity
Manage episode 424596622 series 2516749
There’s been some decent ink spilled recently on the “dispersion trade” which has profited from the epically low level of realized correlation among stocks. If winning trades attract capital and erode the margin of safety in the process, is this exposure crowded and vulnerable to an unwind? In this short pod, I lay out a 5-part, informal framework for thinking about risk-off episodes. In the process, we consider the pricing of vol and correlation. While the spill-over risk from dispersion trades gone wrong doesn’t appear to be high, the pricing of index volatility that results from never seen before levels of implied correlation offers a uniquely attractive cost of macro insurance.
I hope you enjoy and find this useful.
167 episodes
Manage episode 424596622 series 2516749
There’s been some decent ink spilled recently on the “dispersion trade” which has profited from the epically low level of realized correlation among stocks. If winning trades attract capital and erode the margin of safety in the process, is this exposure crowded and vulnerable to an unwind? In this short pod, I lay out a 5-part, informal framework for thinking about risk-off episodes. In the process, we consider the pricing of vol and correlation. While the spill-over risk from dispersion trades gone wrong doesn’t appear to be high, the pricing of index volatility that results from never seen before levels of implied correlation offers a uniquely attractive cost of macro insurance.
I hope you enjoy and find this useful.
167 episodes
All episodes
×Welcome to Player FM!
Player FM is scanning the web for high-quality podcasts for you to enjoy right now. It's the best podcast app and works on Android, iPhone, and the web. Signup to sync subscriptions across devices.