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Volatility-based Equity Allocations

The VIX is high, S&P 500 goodbye?

Nicolas Rabener
10 min read
31 Oct 2022

SUMMARY

  • The VIX currently trades within its top quartile since 1990
  • Using volatility to time equity allocations is a widely used strategy
  • However, it is challenging to pursue this over the long-term

INTRODUCTION

The One Ring from J.R.R. Tolkien’s Lord of the Rings saga is a plain gold ring unless it is thrown into a fire, when Elvish runes appear that roughly translate into “One Ring to rule them all, One Ring to find them, One Ring to bring them all, and in the darkness bind them”.

Investors are not searching for a ring, but they love the idea of a single all-powerful signal that can be used to time markets. Unfortunately, like the One Ring, such a signal remains a fantasy.

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