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