Strategies · Library · Stocks
§3.4Factor
Low-volatility anomaly
Stocks that were calm in the past have tended to earn at least as much as the jumpy ones, which cuts against the idea that more risk pays more. Buy the lowest-volatility decile, short the highest.
Open in the builderAs a long-only proxy; see how ARCANE uses it.
- Asset class
- Stocks
- Held for
- Months
- Data
- ARCANE has the data
- Symphony
- Builds as a long-only proxy
The rule
- Signal
- Standard deviation of daily returns over six months to a year.
- Entry and exit
- Rank at each rebalance; hold for a similar length as the measurement window.
- Sizing
- Equal weights within each side; long and short balanced.
How it fails
- Heavy tilt to defensive sectors
- Rate-sensitive when yields jump
- Crowding in low-volatility products
- Short leg lost in long-only
Data it needs
- daily prices
Volatility comes straight from daily closes.
How ARCANE uses it
A Call that defensive names beat the market in a rough period can cite the volatility ranking. Alpha can show which tickers sit in the calmest group.
Builds as a long-only proxy. A filter keeping the lowest-volatility N of a small basket fits; the large universe and short leg are dropped.
Filed under the factor card
Own companies that are small, cheap, profitable and invest conservatively, against their opposites, and rebalance once a year.
A paper plan from this card holds 63 to 365 days, stops at 2× the expected move and uses at most 75% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §3.4, p. 43 of the SSRN version. Described in our words. Factor is ARCANE’s filing, not the book’s.