Despite market volatility, the relationships between stocks typically remain persistent, says Adrian Banner, CEO and CIO at Intech Investment Management, and manager of the Renaissance U.S. Equity Fund.

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And, he notes, this fact holds true even during major market downturns. “The financial crisis was a big turning point in markets — certainly a lot of conventional wisdoms were overturned. Nonetheless, there were a number of relationships that held up.”


For instance, let’s say stock A is more volatile than stock B in a calm market. If the volatility of both stocks increases during a crisis, stock A should still be more volatile than stock B.


Banner explains, “Our strategy is we’re always looking to measure what’s present, and not assume anything about volatilities. [Still], we haven’t had to adjust how we measure the relative correlations and volatilities between stocks.”

His firm studies volatility, “not just as a source of risk, but also as a source of reward.” So he measures how stocks behave relative one another, as well as relative to benchmarks such as the S&P500, before making investment decisions.


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Originally published on Advisor.ca

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