have episodes of more benign model-driven deleveraging. In each quadrant exists examples of simultaneously increasing equity and bond volatility (that is, high absolute equity and bond daily returns). However, in the first and third quadrant, equity and bond moves are in the same direction, which would likely be an example of increasing correlation. On the other hand, in the second and fourth quadrant equity and bond moves are in opposite directions and hence correlation is subject to a decrease. The main takeaway here is the most risk of model driven deleveraging from vol controlled risk parity funds comes when Both volatility and correlation of the underlying components rise together.
eg ios Bankof America 6 Global Equity Volatility Insights | O09 August 2016 Merrill Lynch
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