Low Downside Volatility

Introducing a new investment factor

Solactive Research has published a new white paper The Downside of Low Volatility. Following the launch of the Minimum Downside Volatility Index Series early in 2017, the new paper focuses on downside volatility as an individual investment factor.

Investing in factor strategies that aim to exploit the low risk effect using standard deviation limits the upside potential. This happens because using standard deviation punishes both negative and positive deviations from mean returns equally. Hence, relying on a risk measure that focuses only on the volatility of negative returns, such as downside volatility, can help to avoid this drawback.