Implied correlation
Definition · Level 5 · Greeks & volatility
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The average correlation between an index’s members that makes their implied volatilities add up to the index’s implied volatility: (σ²index − Σ w²σ²) ÷ ((Σ wσ)² − Σ w²σ²).
Example
Four stocks at IV 30, index IV 21 → 0.32.
Where Tradecraft teaches it
Level 5 · Greeks & volatility, in the lesson “VVIX and dispersion”: The volatility of volatility, and the gap between index vol and the vol of its members.
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