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Long Volatility Strategies versus Tactical Asset Allocation

Both are great, both have challenges

Nicolas Rabener
10 min read
22 Aug 2022

SUMMARY

  • Long volatility strategies are attractive diversifiers, but complex and not easily accessible
  • Tactical asset allocation for equities may be considered as an alternative
  • There is no clear winner between these two options

INTRODUCTION

Risk management in portfolio construction is primarily achieved via diversification or rules-based frameworks. The former simply means combining asset classes that tend to be lowly correlated, eg bonds and equities over the last few decades. The latter implies defining rules on when to exit, eg if the S&P 500 drops below the 200-day moving average, then reallocate capital from stocks to bonds.

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