The rapid recovery in stock prices and the fall in volatility after their correction suggests the same type of trades - which contributed to the abruptness of the selloff - are being re-entered.
Stock-index correlation’s wobble in the recent market upset has been brief. It had hit new lows and was a sign that the days of ultra-low volatility were numbered. Dispersion selling – whereby index volatility is sold versus vol on individual stocks – has the effect of driving down correlations.
