April 10, 2024 (NO COMMENTS)

Banks tout alternative versions of relative value vol strategy, including reverse dispersion

The on-trend equity dispersion trade, which has grown five-fold in the last four years, to a vega notional of up to $1 billion, is starting to lose its allure. As record low correlation takes the juice out of the strategy, investors are eyeing alternative implementations – including inverse versions of the trade. Equity dispersion – in which investors bet the volatility of single stocks will outpace index volatility – became a favoured trade among hedge funds and asset managers in recent years