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The volatility paradox:
When winners lose and losers win
July 2011
Volatility can do strange things to portfolio returns. It can lead to a strategy that based on historical return patterns is expected to generate a positive return—in practice, producing negative returns most of the time. It leads to the "expected" return being something that maybe you should not expect at all. In this paper, we describe the confusing — seemingly paradoxical — impact of volatility and the dangers of oversimplifying your measure of risk.
Download Research
For more information about our research, please contact David or Gerry:
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Date of first use: July 2011
USI-10296
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