When it comes to investing, one of the easiest ways that you can improve your probability of success is to take advantage of diversification opportunities through different asset classes, geographical markets and industries. Financial markets do not move in concert with one another. And at various points in the market cycle, different types of investments or asset classes—such as cash, fixed income, and equities— will have varying performance. This performance varies because asset classes can respond differently to changes in environmental factors, including inflation, the outlook for corporate earnings and changes in interest rates. By holding a combination of different asset classes in your portfolio, you can take the guesswork out of predicting winning and losing investments in any given year.
Source: NovelInvestor.com Protecting a portfolio against a market correction is achieved by buying Put options on an index or ETF that is closely correlated to that portfolio. Put options provide unlimited downside protection with a fixed cost. Simply put, it can be viewed as buying an insurance policy with a one-time premium.
Utilizing volatility to control and lower the portfolio risk is one of the most used Wall Street strategies.
This VIX hedging strategy consists of two components that, together, aim to protect from short-term volatility spikes and extreme tail-risk events.
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