AbstractWe investigate the variance risk premium (VRP) and implied correlation (IC) at the industry level. Using the index and sector exchange‐traded fund options, we construct‐sector VRPs and cross‐sector IC measures. Sector VRPs predict sector returns, and adding the average sector VRP with IC improves predictability. Combining the average sector VRP and IC outperforms the market VRP in predicting market returns both in‐sample and out‐of‐sample and generates sizeable economic values. We document a strong spillover effect from sector VRPs to the market VRP. The average sector VRP and cross‐sector IC contain information beyond the market VRP and cross‐stock IC.