Mastering Python for Finance - Second Edition

The correlation between the SPX and the VIX

We can use the corr() method to derive the correlation values between each column of values in the pandas DataFrame object, as in the following Python example:

In [ ]:    log_returns.corr()

This gives us the following correlation table:

SPX	VIX
SPX	1.000000	-0.733161
VIX	-0.733161	1.000000

At -0.731433, the SPX is negatively correlated with the VIX. To help us better visualize this relationship, we can plot both sets of the daily log return values as a scatter plot. The statsmodels.api module is used to obtain the ordinary least squares regression line between the scattered data:

In [ ]:    import statsmodels.api as sm    log_returns.plot(        figsize=(10,8), x="SPX", ...