Summary
The ETF Component Report analyzes the weighted average of an ETF's component implied volatilities divided by the ETF's implied volatility. The component ratio indicates the benefit of diversification when high and the risk of implied correlation when low.
Components' Implied Volatility / ETF Implied VolatilityComponent Ratio (the Ratio) = Weighted average of the ETF's component implied volatilities divided by the ETF's implied volatility. When the market is high (RED graph), the Ratio (BLUE graph) is mostly high. When the market is low, the Ratio is low.The component ratio shows the benefit of diversification (when HIGH), and the risk of implied correlation (when LOW).
Disclaimer:
The opinions and ideas presented herein are for informational and educational purposes only and should not be construed to represent trading or investment advice tailored to your investment objectives. You should not rely solely on any content herein and we strongly encourage you to discuss any trades or investments with your broker or investment adviser, prior to execution. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. Option trading and investing involves risk and is not suitable for all investors.
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