Implied Correlations And The Death Of RO-RO

In this video we look at the CBOE Implied Correlation Index and the general evolution of correlations for the S&P500 and what it means for traders and investors. Specifically, the video walks you through a couple of slides of a recent edition of the Weekly Macro Themes report. In the video, we talk through how the Implied Correlation Index can be used as a market timing indicator, as well as gleaning insights on the broader prevailing market regime. We also take a look at the implied correlation index in relation to historical realized average pair-wise correlations across the sectors of the S&P500 and discover an interesting development. Realized correlations have dropped to extremely low levels last seen around the peak of the dot com bubble – an important point which we talk through in the video. We also note how the implied correlation index has likewise fallen to levels last seen around the 2007 market top. From a market timing stand point the implied correlation index is ‘implying’ a risk of a short-term market top.

Video length: 00:14:12