Market Measures - March 16, 2021 - Will Correlations Mean Revert
Some pairs have correlations that are mean reverting. In this study we focused on IWM-QQQ. If a pair has a mean reverting correlation, it does not mean that the pair price itself will mean revert.
Trading a pair with high correlation means a pair with less overall risk. With the Russell-NASDAQ pair at a historically moderate correlation, the risk of trading that pair now is much lower than it was three months ago.