investment viewpoints

Do better volatility forecasts improve risk-based portfolios?

Do better volatility forecasts improve risk-based portfolios?
François Chareyron - Portfolio Manager

François Chareyron

Portfolio Manager
Julien Royer, PhD - Quantitative Analyst

Julien Royer, PhD

Quantitative Analyst
Gabriele Grignani - Quantitative Analyst Intern

Gabriele Grignani

Quantitative Analyst Intern

MARS, our Multi-Asset Research Series, focuses on complex topics in the realm of multi asset to bring quantitative investment research back to Earth. This third edition completes our previous research on range-based volatility measures – or models that account for intraday patterns –  by asking if such measures could improve the return profile of a risk-based portfolio.


Key topics include:

  • The benefit of using range-based volatility measures in a risk-based portfolio may appear intuitive – a better risk measure should improve the performance of a risk- based strategy – but there is no existing theory, nor are there any straightforward empirical results, leading to that conclusion 
  • Building on our previous two editions of MARS that investigated range-based volatility measures, we turn to a key question for investors: could using such improved volatility measures help the performance of risk-based portfolios? 
  • The paper considers a number of areas, including how to leverage range-based volatility forecasts when computing Equal Risk Contributions portfolios  
  • Turning to the potential outperformance of portfolios built on range-based volatilities, we emphasise that the benefit of using volatility models that account for intraday patterns is not just a statistical occurrence 
  • Finally, we evaluate the results of potential outperformance from the point of view of a risk-averse investor 


For more, please read the third issue of MARS.

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