Correlations closed the week at .77, the second lowest reading in the past month.

While the report has been calling for lower vol for over a month – the risk was and still is the fact the we saw unprecedented volatility and the VIX largely ignored this.  Still today the VIX-HRV spread is under the first percentile for the last 15 years of data – though the spread continues to compress quickly.

Risk has failed to materialize thus far and the volatility analog to 2008 is effectively dead, though volatility and correlations are still elevated relative to their historical values.  The tail risk would be heading back to the lows within 10 days – which seems more and more unlikely every day.

We think we are in flux, now – where there appears to be no strong advantage directionally, while risk remains high.  If we come across anything to change our minds we will post.