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Noisy short-term correlations in global volatility index futures: why trading one regional index futures market may not be enough
By Mark Shore
Thursday, April 10, 2014

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.

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Copyright ©2014 Mark Shore, used with permission. 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.

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