This defensive equity factor seeks out the "low volatility anomaly"—the
observation that stocks with calmer price movements often deliver superior
risk-adjusted returns. Volatility is calculated as the standard deviation of
daily returns over a trailing window (60 trading days by default).
On the first trading day of each month the universe is ranked by realized
volatility. The strategy goes long the lowest-volatility decile and shorts the
highest-volatility decile, allocating equal dollar weights within each bucket.
Positions are held until the next monthly rebalance and no explicit stop-losses
are used.
Backtests show a smoother equity curve and smaller drawdowns than the broad
market, making the approach attractive for investors seeking equity exposure
with reduced risk.
- Entry Criteria: Monthly sort by trailing volatility; long lowest decile,
short highest decile
- Long/Short: Both
- Exit Criteria: Next monthly rebalance
- Stops: No
- Default Values:
- VolWindowDays = 60
- Deciles = 10
- MinTradeUsd = 200
- CandleType = TimeSpan.FromDays(1)
- Filters:
- Category: Volatility
- Direction: Both
- Indicators: Standard deviation
- Stops: No
- Complexity: Intermediate
- Timeframe: Medium-term
- Seasonality: No
- Neural networks: No
- Divergence: No
- Risk level: Low