A low volatility strategy is an investment approach focused on constructing a portfolio of assets, including cryptocurrencies, that exhibit historically lower price fluctuations relative to the broader market. The objective is to achieve stable returns with reduced risk exposure.
Mechanism
This strategy typically involves quantitative analysis to identify digital assets or derivatives with lower standard deviations of returns, beta coefficients, or other volatility measures. Portfolio construction often entails allocating a larger proportion to these less volatile assets, potentially incorporating hedging instruments like options to mitigate downside risk further. Risk parity approaches may also be utilized to balance risk contributions from various assets.
Methodology
The strategic methodology involves regular rebalancing to maintain target volatility levels and systematic monitoring of market conditions for shifts in asset characteristics. Investors employing this approach aim to capitalize on the “low volatility anomaly,” where less volatile assets have historically outperformed higher-volatility counterparts on a risk-adjusted basis. This can be particularly relevant in the highly dynamic crypto market to reduce portfolio variance.
We use cookies to personalize content and marketing, and to analyze our traffic. This helps us maintain the quality of our free resources. manage your preferences below.
Detailed Cookie Preferences
This helps support our free resources through personalized marketing efforts and promotions.
Analytics cookies help us understand how visitors interact with our website, improving user experience and website performance.
Personalization cookies enable us to customize the content and features of our site based on your interactions, offering a more tailored experience.
