Definition

This conveys how much a strategy’s return swings around the mean return. It indicates the uncertainty of a strategy.

Asset 12@2x

Where σ(Daily) is the standard deviation of the daily logarithmic returns for a strategy. T is the time period over which we want to calculate volatility. For an annualised calculation, T is set to 252, as this represents the number of trading days in a calendar year. 

Low Vol Investing

Low volatility is a recognised style of factor investing. It aims to buy low volatile stocks with the goal of achieving a higher risk adjusted return than the market. For factor based models, investors prefer to reduce volatility for multiple reasons. A volatile portfolio can have an emotional toll on the investor as well as introducing a higher risk of losses if the investor needs to exit a position at a future date. According to financial theory risk and return are positively related, however in practice there are anomalies. 

Aikido

Aikido utilises the low vol factor in some of our high performing quant strategies. Our High Qual, Low Vol strategy has returned over 18% since January 2000 with an exceptional Sharpe ratio of 1.03.