By Mark Shore
One of my previous articles “Noisy short-term correlations in global volatility index futures: why trading one regional index futures market may not be enough” discussed the correlations of the VSTOXX® Futures and VIX futures to the EURO STOXX 50® Index. This article is a deeper examination into the behavior of the VSTOXX® spot volatility index when the EURO STOXX 50® Index rallies and is based on 20-day and five-day rolling returns.
It demonstrates potential opportunities for traders and investors to short VSTOXX® Futures when equities rally and/or to reduce or eliminate long positions in the volatility index. However, as noted in the five-day and 20-day rolling returns, VSTOXX® spot on occasion may rally while equities do the same, but it often occurs at turning points of market direction or corrections. This analysis supports the argument of previous research for VSTOXX® maintaining a strong negative correlation to the EURO STOXX 50® Index but the correlation may become less negative during equity rallies. Liquidity is always important to an investor or trader.
How does VSTOXX® behave when equities rally?
The first question examines how VSTOXX® spot behaves when the EURO STOXX 50® Index rallies based on a five-day rolling return. The EURO STOXX 50® spot derived
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Follow Mark Shore on Twitter, Facebook and Linkedin
Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at info@shorecapmgmt.com Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com
Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business, where he teaches the only known accredited managed futures course in the country. He is also a Board Member of the Arditti Center for Risk Management at DePaul University.
Past performance is not necessarily indicative of future results. Only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
One of my previous articles “Noisy short-term correlations in global volatility index futures: why trading one regional index futures market may not be enough” discussed the correlations of the VSTOXX® Futures and VIX futures to the EURO STOXX 50® Index. This article is a deeper examination into the behavior of the VSTOXX® spot volatility index when the EURO STOXX 50® Index rallies and is based on 20-day and five-day rolling returns.
It demonstrates potential opportunities for traders and investors to short VSTOXX® Futures when equities rally and/or to reduce or eliminate long positions in the volatility index. However, as noted in the five-day and 20-day rolling returns, VSTOXX® spot on occasion may rally while equities do the same, but it often occurs at turning points of market direction or corrections. This analysis supports the argument of previous research for VSTOXX® maintaining a strong negative correlation to the EURO STOXX 50® Index but the correlation may become less negative during equity rallies. Liquidity is always important to an investor or trader.
How does VSTOXX® behave when equities rally?
The first question examines how VSTOXX® spot behaves when the EURO STOXX 50® Index rallies based on a five-day rolling return. The EURO STOXX 50® spot derived
Read More
Follow Mark Shore on Twitter, Facebook and Linkedin
Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at info@shorecapmgmt.com Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. www.shorecapmgmt.com
Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business, where he teaches the only known accredited managed futures course in the country. He is also a Board Member of the Arditti Center for Risk Management at DePaul University.
Past performance is not necessarily indicative of future results. Only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.
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