Correlation Trading Strategies: Opportunities and Limitations

Abstract

This article gives an overview of and analyzes the most popular correlation trading strategies in financial practice. Six correlation strategies are discussed: 1) empirical correlation trading, 2) pairs trading, 3) multiasset options, 4) structured products, 5) correlation swaps, and 6) dispersion trading. Additionally, this article briefly focuses on trading correlation and outlines the risk managing properties of correlation products.