Great question here from Polly:

“What is the correlation between the Aggressive Vol strategy and the Tactical Volatility strategy?”

As always feel free to ask me as many questions as you like, and if you’re wondering something then chances are good someone else in the community is wondering the same thing so I can answer these publicly to help everyone.

If you’ve never seen a correlation table they are pretty easy to use.  Just scroll over to the strategy and then down to where it intersects with the other strategy you’re comparing to.  The number in that box is the correlation.  And it works either way, starting at the top or starting from the left which is why there are two values for each.  Sometimes people show them with only half the values filled in, but I think it’s just quicker to see it at a glance with both.

For example, Polly is asking about the correlation between the Aggressive Vol and the Tactical Volatility  (marked in light green)

So the correlation between the VTS Aggressive Vol strategy and the VTS Tactical Volatility Strategy is 78%.

Naturally it’ll be higher because in the last several years both have gone up substantially so we should expect a reasonably high correlation, but they aren’t the same strategy with different tickers.  Aggressive Vol has it’s own set of indicators and thresholds which allow for more trades, and it is possible that it would be in cash when the Tactical Volatility is in a trade, and vice versa.  They are different strategies.  The same applies to the VTS Conservative Vol as well.  It’s an independent strategy with it’s own parameters.

Or maybe you’re wondering about one of the strategies compared to the S&P 500?  Let’s say the correlation between the VTS Tactical Balanced Strategy and the S&P 500:

Correlation management is a very important aspect of portfolio management.  It doesn’t do investors any good in the long run to fill their portfolio with highly correlated assets.  That may work out well during bull markets but won’t be much fun to see the entire portfolio decline during bear markets.

Now my VTS strategies have only been active during this 9 year bull market so to see what the true mathematical bear market correlations are we’ll just have to wait and see, but I suspect that all of my strategies will see reduced correlations to the S&P 500 when trouble does finally hit the markets.  Because each of them have their own built in bear market signal, I’m hopeful that we can continue to keep mathematical correlations to the S&P 500 to a minimum.

If you haven’t seen Part 4 of the Risk Adjusted Return Series that discusses correlations, you can check that out below:


Current VTS Total Portfolio Solution Allocations

25% VTS Tactical Volatility Strategy

50% VTS Tactical Balanced Strategy

25% VTS Iron Condor Strategy

VTS Conservative Vol Strategy  –  Optional replacement for lower risk tolerance investors


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