Volatility
A watchlist is a curated list of entities (allocators, managers, companies) a user tracks for changes, outreach timing, or diligence follow-up.
Allocator relevance: Useful for liquid strategies and risk budgeting—but incomplete for private markets where marks are smoothed and liquidity risk dominates.
Expanded Definition
Volatility describes how much returns fluctuate. In liquid markets, it’s a practical risk proxy used in portfolio construction, Sharpe ratios, risk budgets, and constraint setting. However, volatility has limitations: it treats upside and downside variability equally, and it does not capture tail events well. More importantly for allocators, volatility can be misleading when applied to private assets, because private valuations are updated infrequently and often smooth true economic swings.
That’s why allocators typically treat volatility as one layer in a broader risk framework that includes drawdown, correlation behavior under stress, scenario analysis, and liquidity constraints. A portfolio can look “low volatility” and still be fragile if it contains hidden leverage, concentrated exposures, or liquidity mismatch.
In allocator portfolios, volatility becomes most useful when tied to portfolio role: is the sleeve intended as a diversifier, a return engine, or a liquidity buffer? The acceptable volatility profile depends on the job the allocation is supposed to do.
Key Takeaways
- Volatility is a risk proxy, not a full risk picture.
- Private market volatility is often understated due to smoothing.
- Pair volatility with drawdown, scenarios, and liquidity analysis.