By Mark Shore

For decades, investors frequently perceived a traditional portfolio allocation in the range of 60 percent equities and 40 percent bonds for proper diversification. Since 2000 investors, both large and small, have experienced several moments of negative returns to their portfolios. This experience has enlightened many investors to seek wider portfolio diversification in attempts to reduce their correlation risk, tail risk and negative volatility.

As investors search for greater diversification, it begs the question, is there an added value to allocate some portion of a traditional portfolio to a volatility index, such as VSTOXX® Futures? Investors often view each component of their portfolio as a standalone investment. Ultimately asset allocation is about how each portfolio component compliments the entire portfolio. Asset allocation should be viewed as a holistic approach to portfolio management.

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Copyright ©2015 Mark Shore. Contact Mark Shore for permission for republication at [email protected] 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. There is risk of loss when investing in futures and options. Futures and options can be a volatile and risky investment; 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.

By Mark Shore

Are the VSTOXX® and VIX indexes becoming less correlated or is it simply natural for the correlation to have wider swings than the tight correlation range that occurred at the height of the financial crisis? This article examines this question by analyzing rolling correlations.

In my previous VSTOXX® articles I discussed the correlation of the VSTOXX® spot index to the VIX spot volatility index and highlighted the difference in correlations prior to the financial crisis versus during the crisis. 

Recently, some volatility market participants have mentioned a possible breakdown in correlation between the two volatility indexes, thus it is an appropriate time to review their correlation. With the divergence in economic activity, U.S. equity market gains and the end of quantitative easing in the U.S. versus the EU’s sovereign debt issue, rate cutting and the declining euro, this begs the question: has the correlation of the volatility indexes recently shifted again?

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Copyright ©2015 Mark Shore. Contact Mark Shore for permission for republication at [email protected] 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. There is risk of loss when investing in futures and options. Futures and options can be a volatile and risky investment; 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.

By Mark Shore
Financial markets are about making decisions in moments of uncertainty. The one certainty one can make is that no one has a crystal ball, nor can anyone predict with certainty what will occur in the future. Although seeking methods to manage portfolio volatility and tail risk may fall out of fashion from time to time based on market sentiment, it should always be utilized as part of the risk management process. Volatility indexes are instruments that may assist in the risk management process.

In the capital markets when participants ask if a product is still relevant is often when the product finds itself out of favor. Sometimes that is when the product is at its lowest point just before it becomes relevant again and back in favor. This was exactly the situation that occurred with volatility indexes during the summer of 2014.

Last July, Japan was reported to be leading the global decline in volatility to the lowest level in seven years. The U.S. market this past summer witnessed the VIX reaching lows not seen since pre-financial crisis days and market participants asking if volatility is too cheap. The VSTOXX® spot index derived from the EURO STOXX 50® Index also found itself near historical lows recently as noted in Chart 2.

Volatility is a function of sentiment: If investors believe the near future is less certain, volatility may increase and the shape of the VSTOXX® Futures curve could move from contango to backwardation. Or if investors are more optimistic for the near future, volatility may decrease. For example:

The Euro Area Sentix Investors Sentiment index turned positive in the fall of 2013 and remained positive until September 2014. The Euro Area Zew Investors Sentiment index has remained positive since January 2013. Although still positive, the Zew index has trended lower since January 2014.

1. Earlier this year ConvergEx Group released a European Equity Market Structure Survey and asked “How confident are you that the European equity markets could handle the volume created by a sudden geopolitical crisis or other large volatility shock?” 40% were confident, 6% were very confident; 23% not confident and 8% not confident at all. If 54% are less than confident, than seeking various methods to absorb the volatility shock such as VSTOXX® Futures may offer some assistance. But it may be similar to fire insurance; you need to have it before the fire occurs instead of trying to obtain the insurance during the fire.
2. July 2014 ConvergeEx Group survey of U.S. investors asked the following question “Do you believe investors in the capital markets are too complacent at the moment, given historically low volatility levels?” 66% of the respondents agreed investors are either complacent or much too complacent.
3. A Forbes article last March mentioned fund managers believe investors were increasing their allocation to European equities and an increased sentiment of economic growth of the Euro area.
4. The annual Global Sentiment Survey for 2014 conducted by Franklin Templeton Investments found an increased positive sentiment for equity markets. In 2013 55% of the respondents believed their local equity market would be positive. In 2014 62% believed their local equity market would rally. By parsing the survey regionally, the European respondents went from 59% positive in 2013 to 64% in 2014. The North American respondents went from 74% in 2013 to 69% in 2014. The percentage dropped a little in North America, but is still relatively high.

A few interesting points were found READ MORE


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Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at [email protected] 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.  There is risk of loss when investing in futures and options.  Futures and options can be a volatile and risky investment; 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.

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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Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at [email protected] 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.

By Mark Shore
The political uncertainty in some Eastern Europe countries caused volatility and stress in the European equity markets. This article examines the recent volatility in the EURO STOXX 50® Index and the corresponding price moves in the VSTOXX® volatility index. Could the VSTOXX® volatility index offer portfolio diversification during these moments of uncertainty? Does it offer a more efficient diversifier for European equity exposure than other volatility indices? This discussion includes two perspectives; the hedger (investor) and the trader.

Liquidity is always important to an investor or trader. Table 1 gives readers an overview of the developments in VSTOXX® Futures liquidity over the last years.

Since last September, the EURO STOXX 50® Index has trended higher. However, READ MORE

Follow Mark Shore on Twitter, Facebook and Linkedin

Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at [email protected] 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.

Chicago PRMIA (Professional Risk Management International Association) Presents:

Volatility Products for Risk Management

Join Chicago PRMIA for an evening of discussion with experts on volatility products. From research to product application including VIX, VSTOXX and options. Different tools, perspectives and strategies for different applications.

Any questions in advance for the speakers may be emailed to [email protected]

Speakers Include:
Cem Karsan, AEGEA Capital
Mike Kimbarovsky, Advocate Asset Management
Mark Shore, Shore Capital Management / DePaul University

Monday May 19th, 2014

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Follow Mark Shore on Twitter, Facebook and Linkedin

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.

Skewing Your Diversification with host Mark Shore
April 6, 2014. Topics include: VSTOXX futures, VIX futures, correlations, spreads, CBOE, Eurex, S&P 500, Euro STOXX 50, managed futures, hedge funds and much more.

The presentation is based on the paper "Spreading European and U.S. volatility index futures". Click here to read the paper.

Skewing Your Diversification is a weekly internet show hosted by Mark Shore on www.btfd.tv

The show covers many topics of alternatives with a special focus on managed futures, hedge funds, commodities, currencies and futures. Stay tuned for more episodes and lots of great guests!

For a full list of episodes click here

Follow Mark Shore on Twitter, Facebook and Linkedin

Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at [email protected] 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.  There is risk of loss when investing in futures and options.  Futures and options can be a volatile and risky investment; 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.

By Mark Shore

Since we have discussed some of the similarities between VSTOXX® Futures and VIX futures including how one can spread the two markets against each other in earlier editions of our newsletter, this article focuses on compelling reasons for utilizing VSTOXX® Futures.

Specifically, we look at a number of different correlation analyses between the VSTOXX® and VIX with the goal of identifying whether VIX exposure provides sufficient coverage for those investors whose portfolios have European exposure. Liquidity is always important to an investor or trader. Table 1 gives readers an overview of the increase in VSTOXX® Futures liquidity over the last years.

One of the most important reasons for utilizing a volatility futures contract is how it behaves in relation to its respective underlying market. VSTOXX® Futures represent the 30-day implied volatility of the downside volatility of the EURO STOXX 50® Index while VIX futures represent the 30-day implied volatility of the downside volatility of the S&P 500 Index.

If one has exposure to European markets or wants to trade the volatility
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Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at [email protected] 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.  There is risk of loss when investing in futures and options.  Futures and options can be a volatile and risky investment; 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.

Skewing Your Diversification with Mark Shore and special guest Megan Morgan February 23, 2014. Topics include: VSTOXX Futures, volatility, hedging, Euro STOXX 50, volatility newsletter, Eurex Exchange and much, much more

Skewing Your Diversification is a weekly internet show hosted by Mark Shore on www.btfd.tv

The show covers many topics of alternatives with a special focus on managed futures, hedge funds, commodities, currencies and futures. Stay tuned for more episodes and lots of great guests!

For a full list of episodes click here

Follow Mark Shore on Twitter, Facebook and Linkedin

Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at [email protected] 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.  There is risk of loss when investing in futures and options.  Futures and options can be a volatile and risky investment; 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.

By Mark Shore

In this article we speak with Gabriel Manceau, an equity derivatives trader for Barclays Capital and market maker in VSTOXX® Futures. We asked him why European focused volatility products are a logical choice both for those looking to hedge European volatility and to trade the product. An active trader of VSTOXX® Futures, he provides the perspective of someone who sees the flow first hand, and hears the conversation about volatility futures on a daily basis.

Mark Shore: How important are European volatility products for investors and why?

Gabriel Manceau: Europe is one of the most actively traded markets. If investors have European exposure they should definitely be looking at European volatility products such as VSTOXX® Futures. The most precise and relative way to hedge European exposure to volatility is by trading European volatility products.

Mark Shore: Is the market ripe for European volatility products?

Gabriel Manceau: There has been and continues to be an increase of investment capital into Europe. Thus the need for European related volatility products increases alongside this greater exposure for European investments. Since the financial crisis, hedging volatility has become a major theme of risk management for many investors. Therefore the increased demand for European volatility hedging coupled with easy to access volatility products makes the timing “ripe”.

Mark Shore: Can VSTOXX® Futures compliment other financial products? If so, what are a few examples?

Gabriel Manceau: VSTOXX® Futures are the cleanest way to play European volatility, in the sense that READ MORE

Follow Mark Shore on Twitter, Facebook and Linkedin

Copyright ©2014 Mark Shore. Contact Mark Shore for permission for republication at [email protected] 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.  There is risk of loss when investing in futures and options.  Futures and options can be a volatile and risky investment; 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.