Volatility adds interesting dynamic to portfolio investments

Carefully trading volatility

smoke-volatility

Volatility arbitrage funds successfully protected investors from the sharp losses in mainstream asset classes, and also other hedge funds, through the turbulent months of 2008.

They made 3.2% in 2008, according to Newedge’s Volatility Trading index of 10 volatility funds, versus a 43% slump in global shares and a 19% fall by hedge funds, according to Hedge Fund Research.

However, volatility-based fund managers say their outperformance should not earmark them as only ‘portfolio insurance’: useful w