Volatility scaling flops in credit alt risk premia
Strategies miss recovery from March plunge, prompting rethink on speed of mean reversion
Credit alternative risk premia strategies that size positions based on volatility came unstuck in March – deleveraging when the coronavirus tumult struck but then missing out on the market recovery in April. The episode has led bankers to ask whether volatility scaling – a standard feature of alternative risk premia strategies across asset classes – makes sense for credit.
The “biggest differentiator by far” in the performance of credit strategies that JP Morgan offers or monitors has been the
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