Implied vs. Realized Correlations
Today’s chart looks at the 3 month implied and realized correlations of some of the leading ETFs. Correlation is calculated as a ratio of the index implied volatility and market cap weighted implied volatility
Implied correlations of all ETFs’ are greater than 3 month realized correlation the exception being RKH. Implied correlations of pro-cyclical sectors like XLE and XLI are 87% and 88% and with decline of economy decelerating these sectors can be expected to perform well in coming days. Implied correlation of RKH is lower than realized as some divergence is performances by the members of the ETF is expected