Written by Upstox Desk
5 min read | Updated on July 31, 2025, 18:25 IST
Summary:
Introduction to implied correlation index
How the implied correlation index works:
Users of implied correlation index:
Using implied correlation index with caution:
Summing up:
Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.
The implied correlation index, also called the 'ICI,' is a financial metric that is used to calculate the implied relation between the prices of options on individual stocks or indices. This blog should help you get a grip on using this index for your investments’ decision-making.
The implied correlation index, also called the 'ICI,' is a financial metric that is used to calculate the implied relation between the prices of options on individual stocks or indices. In the domain of financial risk management and options trading, it is implemented to understand market sentiment and evaluate the anticipated level of correlation among the underlying assets. This blog should help you get a grip on using this index for your investments’ decision-making.
Implied correlation index can be useful for different types of investors, financial professionals and institutions who are keen on understanding market sentiment and managing the risk of their portfolios. The following is a list of some of the key individuals and entities who can benefit from using the index:
The implied correlation index can be a handy tool for those looking to use it for risk management, hedging, portfolio optimisation, volatility forecasting, trading strategies, options and derivates pricing, asset allocation, risk assessment and research and analysis. However, it is imperative to note that it is not an infallible indicator of how the market will actually behave because actual correlations may not be the same as implied correlations, especially in times of market stress and unforeseen events. They may be used as a tool to make better investment and other trading decisions but should not be relied upon entirely for managing risk and asset allocation.
It is important to note that there is no single standardised implied correlation index. This is because there are many ways in which they can be calculated, and they depend on the options being used and the specific methodology that is being employed by different analysts and financial institutions. However, the fundamentals of using implied volatility to calculate expected correlations continue to be consistent across these variations. Investors and traders often use the ICI along with other analysis techniques and market indicators to make informed decisions about their investment strategies.
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Upstox Desk
Upstox Desk
Team of expert writers dedicated to providing insightful and comprehensive coverage on stock markets, economic trends, commodities, business developments, and personal finance. With a passion for delivering valuable information, the team strives to keep readers informed about the latest trends and developments in the financial world.
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