The basics of low-risk strategies

Low-risk investment strategies prefer leveraged low-risk assets over high-risk assets. The measure of risk can be based on price statistics, such as volatility and market correlation, or fundamental features. The rationale for low-risk strategies is that leverage is not available for all investors (but required to increase the weight of low-risk longs) and that many investors pay over the odds for assets with lottery-like upwardly skewed return expectations. Popular versions of this strategy principle include “betting against beta”, “betting against correlation”, “stable minus risky” or “quality minus junk”. Empirical research suggests that low-risk strategies have delivered significant risk-adjusted returns for nearly a century and that this performance has not deteriorated over time.