Correlation to 1

On Monday I wrote an article about some ways that a fully (or partially) invested investor could hedge potential risks. And in naming these ideas, it didn’t exclude speculators from simply trading them.

And with both bonds and stocks sinking strongly today (any day without the 3pm, 345 and 355 pump is a strong day) there was no place to hide. Interestingly though, the hedges I mentioned have really popped since Monday.

I mentioned playing the Vix, TBT, gold, and using options on the QQQ or IWM. All of these have moved pretty good since Wednesday (well, gold related stuff moved a bit less than the others). The strong moves make me wary of a reversal, perhaps short term (probably after 3PM), which would swing these strongly the other way.

Nonetheless, the idea was to find things that had negative correlation with US stocks and bonds and I think we have a few ways here. How you use them is up to your discretion, and as I mentioned in the previous article, consider using these only if you are an experienced trader. The easier risk management plans are either:

the trader’s – using stop losses


the investor’s – buying businesses below intrinsic value

The other choice is just ride the waves, which is what most people do until the losses get TOO big then they sell at the bottom. But since this is not an advice site, and I certainly don’t get paid to share this article with you, the onus is on you to decide when to use what in your trading! Good luck out there and be careful.

And again, for disclosure, I or my clients own the following securities mentioned in the column: Vix related ETN’s, TBT, and gold-related stocks and funds