September 11, 2018

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before
deciding to invest.

Correlations
When we explore correlations between the indices, it’s not just about looking for correlations close to
+1, but others as well and the meaning behind the relationship. Below I point out a few
observations that we find interesting.
We welcome comments and feedback. Best of luck this week.
Michael Rechenthin, PhD
research@tastytrade.com
While Silver and Gold have high correlations
(+0.85), silver tends to move nearly twice as
much as gold (IV of 20 vs 11 for gold).

The S&P 500 and Bonds have a slight negative

correlation (-0.24). With many of the other
indices, the relationship is almost nonexistent.

Banks tend to perform better with increases in

yields (decreases in bond prices). This means a
negative relationship between bonds and XLF.

Utilities and the S&P 500

currently have little to not
correlation. In theory, we can
create diversification by
trading both.

While Nasdaq and Tech is often used interchangeably —

and the correlation is nearly always high, technology
makes up under 50% of the index.