Low Volatility — selection & rebalancing
How the top stocks are selected
At each rebalance, every S&P 500 company is scored by the volatility of its last 12 monthly returns — the standard deviation of the twelve month-over-month percentage changes:
score = standard deviation of the last 12 monthly returns (lower is better)
The engine sorts all ~500 companies from calmest to most volatile and holds the N least-volatile in equal weight. This defensive style usually surfaces utilities, insurers, and consumer staples; it tends to lag in strong bull markets but hold up better in downturns.
When it buys and sells (the rebalance)
Prices are month-end closes. Like Momentum, Low Volatility ranks on the prior month-end (using the 12 monthly returns through that date) and trades at the current month-end close.
Worked example — N = 5, quarterly rebalance
Consider the March 2021 rebalance:
- Ranking input: for each stock, the standard deviation of its 12 monthly returns through Fri, 26 Feb 2021 (the Feb month-end).
- Wed, 31 Mar 2021 — at the closing bell. Buy the 5 calmest names at 20% each, executed at the 31 Mar close; sell anything that left the bottom-5-volatility set.
- Apr & May 2021 — no trading; holdings drift and the monthly contribution is added pro-rata.
- Wed, 30 Jun 2021 — at the close, re-rank (volatility through 31 May), trade, and reset to equal weight. And so on each quarter.
Because it needs 12 months of returns, the backtest effectively begins about a year after your start date.
Why month-end close? Every trade is modeled at the month-end closing price — no specific clock time, next-day open, or intraday fills.
The Rebalance style controls what happens to the weights at each rebalance — a full equal-weight reset, a reset only when the line-up changes, or trading just the additions and removals.