The Herd Instinct Takes Over-Component Stocks' Correlation to S&P 500...
- Thread starter ASusilovic
- Start date
I dont know how else to help you, but maybe you wanna look up how standard deviation and realized volatility is computed. Realized vol in equity markets has been very high on daily time frames (I pointed out couple times I dont talk about intraday vol), no matter which equity market you look at. Then look at commodities (gold, grains, cocoa, ....), rates products, and foreign exchange (Euro, GBP, USD, ...) . Before you display your complete lack of knowledge you maybe want to point us to those assets that have displayed very low volatility over the past couple months. Care to share?
Dude, you sound like a first year associate coming out of Wharton, behaving like a typical know-it-all.
a) I urge you again to look up how realized vols are calculated, its a very simple concept, even MBAs get it. Your comment below shows an utter disregard for simple math, to say the least...
b) That correlations do not move much MEANS NOTHING to realized and even implied vols. There were periods when vols were in the teens and correlations close to one in the broad equity markets and there were times, such in 2008, when vol reached 80+ % annualized and correls were also trading in the 80s-90s.
Both your comments hint at the fact that you wanna get back to the drawing board and think a little harder at what you just said...
a) I urge you again to look up how realized vols are calculated, its a very simple concept, even MBAs get it. Your comment below shows an utter disregard for simple math, to say the least...
b) That correlations do not move much MEANS NOTHING to realized and even implied vols. There were periods when vols were in the teens and correlations close to one in the broad equity markets and there were times, such in 2008, when vol reached 80+ % annualized and correls were also trading in the 80s-90s.
Both your comments hint at the fact that you wanna get back to the drawing board and think a little harder at what you just said...
I think EURUSD has become an incredibly difficult trade. With the US economy turning south it becomes highly questionably whether we ever see 1.20 again within the next couple months, 1-2 years. The only chance is that Europe is gonna go down the river and that pronto. I expect both but its very hard at the moment to judge which region will relatively under-perform from now. I will put more shorts on if rating agencies start shaking the PIGS's pants or when credit markets start to deteriorate at increasing speeds again.
I would not be surprised at all to see the Euro trading north of 1.35 and that for a sustainable period of time unless the US economy is gonna pick up again in terms of employment and consumer spending. I do not believe in neither pick up so it all depends on how Europe is gonna perform over the next couple weeks/months. Germany showed some pretty promising numbers and Europe has at least started to take austerity measures something the US is still far away from even considering. I believe we may slowly move into an even more volatile period, where markets are a pure function of political and rating agency sentiment. I expect the "angst factor" to be a much more important driver than any fundamentals.
I would not be surprised at all to see the Euro trading north of 1.35 and that for a sustainable period of time unless the US economy is gonna pick up again in terms of employment and consumer spending. I do not believe in neither pick up so it all depends on how Europe is gonna perform over the next couple weeks/months. Germany showed some pretty promising numbers and Europe has at least started to take austerity measures something the US is still far away from even considering. I believe we may slowly move into an even more volatile period, where markets are a pure function of political and rating agency sentiment. I expect the "angst factor" to be a much more important driver than any fundamentals.
I tried to bury the hatchet a bit, but fuck it. Both of your points here are just plain wrong. If a market moves up 50% every day, what is its realized daily vol? ZERO. If it moves 1% every day in alternating directions what is it's weekly vol? Etc.
Correlations don't matter in vol trading? Ok. I'll be sure to let all the index/dispersion traders know.
First year out of Wharton... hah. I wish.
a) I dont know why you bring up completely unrealistic numbers instead of sticking to facts, numbers I posted just couple posts above. You may want to stick with reality then we can start talking...
b) Please read carefully, I did not say that correlations do not matter in vol trading. I said that the fact that correlations do not move much does not have to mean a thing for vols. For example, correlations can stay absolutely stable and yet index vol could go up 30-40% in highly stressed markets, given that the component vols also start flying.
Maybe you wanna have a look at the following link as primer before you open your mouth again:
http://math.uchicago.edu/~sbossu/CorrelFundamentals.pdf
(its one of the most basic write-ups to get an idea about dispersion trading, though most other sell-side firms have those as well, let me know if interested in others...)
b) Please read carefully, I did not say that correlations do not matter in vol trading. I said that the fact that correlations do not move much does not have to mean a thing for vols. For example, correlations can stay absolutely stable and yet index vol could go up 30-40% in highly stressed markets, given that the component vols also start flying.
Maybe you wanna have a look at the following link as primer before you open your mouth again:
http://math.uchicago.edu/~sbossu/CorrelFundamentals.pdf
(its one of the most basic write-ups to get an idea about dispersion trading, though most other sell-side firms have those as well, let me know if interested in others...)
so far you have come up with zilch. I dont care how long your trading record is (in other threads you boasted you trade over 15 years, others you converse with may have a very similar trading record, in terms of duration and exposure) or whether your name is Aaron Brown (or whether you possibly just try to give the impression that he is behind your alias).
I never asked you to teach me, your comments were factually wrong and I corrected you. Plus you misread my post to make your incorrect point. But keep on going, you seem to have to defend a huge ego, maybe it originated from the fact that you most of the time worked as quant rather than someone who actually took and managed risk, I cannot judge from the little we exchanged but you give such impression at least...
I never asked you to teach me, your comments were factually wrong and I corrected you. Plus you misread my post to make your incorrect point. But keep on going, you seem to have to defend a huge ego, maybe it originated from the fact that you most of the time worked as quant rather than someone who actually took and managed risk, I cannot judge from the little we exchanged but you give such impression at least...
markets did not move up 50% every day, that was precisely my point (unless you can point me to an asset that behaved as such). Markets moved on the equity side as I pointed out resulting in higher realized daily and weekly vols, simple as that. I bet you have access to Bloomberg, HV gives you a quick glimpse in case you are that removed from reality. Thank God that money is not being made on the back of developing pricing algorithms alone...