Holding all else equal and assuming the correlation surface moves uniformly your statement is correct. In reality there’s probably a strong dependency between index spot, index vol, and index correlation. The main exposure of a skew position is on spot-vol correlation and not index-component correlation.
Very interesting brain teaser, so short SPX skew is somewhat long correlation?
Holding all else equal and assuming the correlation surface moves uniformly your statement is correct. In reality there’s probably a strong dependency between index spot, index vol, and index correlation. The main exposure of a skew position is on spot-vol correlation and not index-component correlation.
Yeah agree, and most likely correlation surface won’t move in a parallel way. Wondering in case of crash will it flatten or steepen.