Recently I
proposed an idea of a simple portfolio with volatility
futures short positions on VIX (S&P 500 volatility index), GVZ (gold volatility index), OVX
(oil volatility index). Now there is a question how correlated are the volatilities
of equities, gold and oil. I’ve made some research.
I calculate
volatility as the average logarithm of a daily price change in 21 daily bars rolling
window.
Volatility of
GLD ( gold ETF, black color plot) and SPY (ETF on S&P 500, red color plot):
Scatter
plot diagram with logarithms of volatilities of GLD and SPY:
Correlation:
0.53
The same research
for oil.
Volatility
of USO (ETF on oil, black color plot) and SPY (ETF on S&P 500, red color
plot):
Scatter
plot:
Oil/equities
volatility correlation is significantly higher: 0.73
Conclusion:
it is reasonable to diversify such a portfolio using VIX and GVZ futures, but
adding OVX is redundant, especially considering its relative lack of liquidity.
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