What is thisThe volatility rainbow tracks divergences in a security and its volatility index. This can be used to identify periods of heightened implied (future) risk.
About VolatilityThe volatility is calculated by looking at put / call ratios. When VIX goes up it means that puts are outpacing calls. This is a bearish signal.
About CorrelationWhen the security goes up while the VIX goes up, the divergence on the plot will increase and turn a color. This should be a warning.
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