Extreme Correlation Between U.S. and Europe

The implied correlation is a classic metric used across volatility markets to measure whether the volatility of an index is expensive relative to its components. This metric is derived from the basic portfolio formula that links the volatility of the portfolio, the volatilities of its constituents and each pair-wise correlation. When implied volatilities are observed on the market, one can derive the average correlation of weighted portfolio, known as the index implied correlation.