Oil and equity volatility correlation to resync
The guest argued that the recently severed correlation between oil prices and equity volatility (VIX) is temporary and will likely resync after April OPEX.
The argument
While equity volatility has been crushed on short-term peace rumors, oil prices have held up, indicating ongoing geopolitical risks. The speaker expects that barring a material change in the Middle East, VIX will get rebid and align back with oil post-expiration.
The thesis, stress-tested
✓ What validates it
- ✓VIX rebounding and rising alongside USO after the April options expiration
- ✓Escalation of geopolitical headlines in the Middle East driving both assets higher
▸ Risks discussed
- ▸A lasting, structural peace agreement would permanently break the oil-VIX correlation
- ▸Demand destruction from sustained high oil prices could suppress long-term oil prices and volatility
Hear it yourself
"So looking forward here in into where we are, this oil equity vol correlation seems to have, at least for the time being, snapped. And so the red line is just the correlation between VIX and USO, which is, my proxy for oil."
00:00 / 00:15
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE