Cboe, one of the largest derivatives marketplace, has announced the launch of a new 3-month Implied Correlation Index (symbol: COR3M) which is an index that is expected to give market participants more specific estimates of expected correction between the factors that drive volatility in the market.
The values are given out four times for every minute during the trading day and are expected to be used as a tool by the traders to help identify the factors behind the implied volatility of SPX by using Cboe Hanweck’s robust option analytics.
“As the pioneer in the volatility space, Cboe has established a widely followed suite of tradable volatility products and indices that help quantify forward-looking volatility expectations through theoretically robust metrics,” said Rob Hocking, Senior Vice President and Head of Multi-Asset Solutions and Derivatives Strategy at Cboe Global Markets. “We are pleased to expand our offering with the new Cboe 3-Month Implied Correlation Index, which is designed to help market participants better understand some of the drivers impacting correlation in the equity markets and more effectively hedge underlying risk and construct trading strategies by isolating volatility components.”
Correlation can be used as a risk management tool and implied correlation tells the market participants about the relative cheapness/richness of the index options as compared to the underlying instrument and traders can then base their risk management strategies depending on the correlation factor.
Cboe plans to first publish the implied correlation index for the 3-month tenor and then follow it up with the full suite of 1-month, 6-month,9-month, 12-month, 18-month, and 24-month tenors in due course of time. This index would be powered by Cboe’s Hanweck platform which uses real-time data and analytics to calculate the implied volatility and Greeks.
Cboe continues to grow and upgrade its systems and features as it plans for global growth and expansion. It had recently entered into the Asian market with the acquisition of Chi-X Asia Pacific and it hopes to expand its instrument range and trade timings to capture the interest of traders and market participants from around the world. It is known for being able to serve both the retail traders and institutional traders in equal measure and the addition of complex instruments like the correlation index is further proof of that fact.