Answer: I and II

## Explanation When a trader expects correlation to rise in the future, they should implement strategies that benefit from increased correlation among assets. Let's analyze each option: **I. Enter correlation swaps as a party to pay realized correlation** - CORRECT - In a correlation swap, the party paying realized correlation receives fixed correlation - If correlation rises above the fixed rate, the payer benefits - This strategy profits when actual correlation increases **II. Buying put options on an index and selling put options on individual components** - CORRECT - When correlation rises, individual stocks tend to move together more closely - Index put options become more valuable as diversification benefits decrease - Selling individual stock puts benefits from reduced idiosyncratic risk - This is a classic dispersion trade that profits from rising correlation **III. Paying fixed in a variance swap on an index and receiving fixed on individual components** - INCORRECT - This is a dispersion trade that benefits from DECREASING correlation - When correlation falls, index variance decreases relative to individual stock variances - The trader would lose money if correlation rises Therefore, only strategies I and II are appropriate for a trader expecting correlation to rise. The correct answer is **I and II** (Option D).

Author: LeetQuiz .