Trading Volatility Across Asset Classes Discussion at RMC

Puneet Kohli from the Healthcare of Ontario Pension Plan and James Hosker from Societe Generale contributed to a presentation titled Trading Volatility Across Asset Classes.

Kohli began the presentation discussing volatility noting that it is mean reverting, it is bounded, and it tends to have low correlations relative to other asset classes.  He considers volatility and asset class as it is investable and measureable.  He also showed that the relationship between volatility and an underlying market differs by market.  For example the relationship between the S&P 500 and VIX is different than the relationship between the price of gold (GLD) and gold volatility (GVZ).

Hosker took over and talked about cross asset trades using exchange traded funds.  He used ETFs as these funds are fairly liquid and transparent.   Some of the trades demonstrated included considering short the S&P 500 and long the Euro-Stoxx Index, the Euro-Stoxx index is undervalued relative to the US market, but it was also noted that the credit risk between Europe and the US is actually pretty similar.  Another demonstration of cross asset trading involves being long Brazilian CDS and short Brazilian Equities.  Some other trading ideas include an outlook for higher interest rates, but the S&P 500 rallying as well, trading currencies versus the price of oil, looking at the Nikkei versus the Japanese Yen, and VIX versus the Euro-Stoxx VIX (VSTOXX).