Definition
The low volatility factor invests in stocks with historically lower price volatility, which have surprisingly delivered competitive returns with less risk. This anomaly contradicts traditional theory that higher risk should mean higher returns. Low-vol strategies are defensive, typically outperforming in down markets and lagging in strong up markets.
Example
A low volatility ETF holds stocks with the lowest 20% standard deviation, providing smoother returns than the broad market.
FAQ
What is Low Volatility Factor?
A factor strategy targeting stocks with lower price fluctuations.
Why is Low Volatility Factor important?
Low Volatility Factor helps investors evaluate investment strategies and make more informed decisions.