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Market Measures

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Mean Reverting Correlations?

Market Measures

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

Some pairs have correlations that are mean reverting. In this study we focused on IWM-QQQ. If a pair has a mean reverting correlation, it does not mean that the pair price itself will mean revert. Trading a pair with high correlation means a pair with less overall risk. With the Russell-NASDAQ pair at a historically low correlation, the risk of trading that pair now is rather high. However, since their correlations seem to mean revert, the risk (volatility) of that pair in the near future may decrease.

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