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Judging by his newest “diary of a quant”, Man AHL’s Russell Korgaonkar is as exhausted by the end-of-year funding outlook blizzard as we’re. And as he factors out, strategists aren’t, umm, nice at predicting the longer term.
Man AHL has lengthy been highly regarded for the concept that volatility is definitely one of the simplest ways to foretell the close to future and dial up and down your publicity accordingly. It’s the principle (self-serving) level of Korgaonkar’s submit.
“Volatility scaling,” Man AHL calls it, however elsewhere the strategy is normally name volatility concentrating on. It’s extensively used within the trend-following hedge fund area, danger parity and variable annuity merchandise, and varieties the idea for value-at-risk fashions which might be nearly all over the place.
It has its critics — who argue it embeds automated feedback loops into markets — but it surely’s true that volatility tends to cluster. It’s equally true that nothing will cease the Wall Road-Industrial Advanced from churning out extremely predictable annual investment outlooks.
Nonetheless, we primarily needed to spotlight the report for a fantastic, up to date model of one in every of Alphaville’s favourite-ever chart codecs: implied charges forecasts over time, and what charges have really completed.
It’s an oldie however a goody, and we reckon it’s good to resurface now and again as a reminder of how arduous it’s to make predictions, particularly in regards to the future. Please bear that in thoughts as we enter 2025!
