THINKSCRIPT LINK
Click here for a link to the thinkscript.
TO INSTALL: To install the thinkscript on your thinkorswim platform, please follow the steps below:
1) Go to 'Charts' tab
2) Click on the "Studies" tab…same line where you type in the ticker same symbol, on the right hand side)
3) Click on "Edit Studies" and then "New"… Lower left hand corner
4) Delete everything in the box. (plot Data = close;)
5) Paste the entire code listed below
6) Name the study 'tastylive_correlation'
7) Click "OK"
8) Click "Apply"
9) Click "Ok"
NOTE: I discuss why the formula may have slightly different results from other platforms (e.g. dough.com) at 15 minutes, 45 seconds in. If you have additional questions, please contact research@tastylive.com
Theoretically, we can reduce portfolio volatility by trading groups of stocks. This was demonstrated in the segment from Best Practices on July 13, 2016: "Options on ETFs vs Their Holdings" which showed that the underlyings in an ETF generally have higher Implied Volatility (IV) than the ETF. We often discuss the importance of correlation. That is because we can reduce the volatility even further by choosing stocks that have a weak correlation to each other. Graphs were shown which helped to explain the correlation between two different stocks. Mike's thinkscript program was introduced. It can be incorporated into the thinkorswim platform and the link and instructions above helps you to do that. Dr. Data explained how to use it to choose a portfolio with a low correlation.
Watch this segment of Skinny on Options Data Science with Tom Sosnoff, Tony Battista and the head of our research team Michael Rechenthin, Ph.D, aka Dr. Data, for a review of the importance of correlation and a fantastic tool you can incorporate into the thinkorswim platform to help you choose stocks with low correlation.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.