QCM NexusOne Insight # 6

July 2025

Aref Karim - Ershadul Haq - Raami Karim

THE VOLATILITY ADVANTAGE

IT IS NOT THE STORM THAT DECIDES THE FATE

Why Volatility Matters

Volatility gives an impression which is that of chaos and risk.  This drives many investors to the sidelines or into safe assets. However, the irony is that without volatility, opportunity evaporates -- there are no major trends to ride, no mispricing to seize. Volatility powers the markets, forging the link between risk and reward which are inseparable. Ignoring it leaves us rudderless, while fearing it means missed chances. The real edge comes from understanding and managing volatility and transforming it from a threat into a source of strategic advantage.

Volatility as the Foe

For decades, conventional wisdom has been simple:

- Higher volatility equals higher risk.

- Lower volatility equals safety.

This is why ‘steady’ assets like government bonds have been so popular. Yet history shows a different truth. Over time, the markets delivering the biggest gains in traditional assets -- equities for example-- have been the most volatile.  Volatility often reflects the search for a suitable growth price. The challenge is not to avoid it, but to manage it intelligently. Diversification across asset classes, geographies, and strategies is still a cornerstone in investing.  This is not to cut volatility, but to stop it from sinking the investor portfolio when it spikes.

Volatility as the Friend

For adaptive, systematic macro strategies, volatility is not just a risk metric — it is a building block.  It provides:

- Opportunity:  Price swings create new entry and exit points.
- Mispricing:  Dislocations during market stress can be exploited.
- Flexibility:  Dynamic scaling allows us to adjust risk as conditions change.

Instead of reacting emotionally to market swings, sophisticated investors design frameworks that harness volatility — capturing upside in motion while holding downside in turbulence. By integrating quantitative signals with disciplined risk controls, they can often turn unpredictable price action into a structured process of discovering opportunity. This approach not only buffers portfolios against shocks but also empowers them to thrive when others may be paralysed by uncertainty.

Not All Volatility is Created Equal

Understanding what volatility you are dealing with is essential:

  - High vol regimes tend to feature stress, panic-selling, and liquidity squeeze, periods where caution and defensive positioning dominate.
 - Low vol regimes can be equally dangerous   lulling investors into complacency and setting the stage for sudden, sharp shocks.

Adaptive systematic macro strategies adjust exposure according to the regime: scaling back when markets are unstable and leaning in when conditions are supportive. By staying nimble, these strategies can sidestep the worst turbulence while staying positioned to capture emerging trends. This discipline transforms volatility from an obstacle into a catalyst for opportunity.

Lessons From Recent Volatility Shocks

- 2008 Financial Crisis:   Extreme market stress and liquidity-freezes punished the rigid but       rewarded those who could cut risk fast and re-engage selectively.

- 2020 Pandemic:   Volatility spiked to historic levels in weeks. Those who adapted early found rare opportunities in the recovery.

- 2022 Stock/Bond Sell-Off:   Rising inflation and interest rates hit both equities and bonds simultaneously, exposing the weakness of static diversification.

- 2025 U.S. Tariff Shock:   Sudden trade policy shifts fuelled sector rotations and sharp swings in U.S. equities — volatility as a by-product of political risk.

Each episode above reinforces the same truth: volatility is not the problem but being unprepared is. Preparation means not only having the discipline to adjust risk, but also the agility to seize emerging opportunities.

NexusOne Insight: The Volatility Advantage

At QCM’s NexusOne, we treat volatility as a navigational tool, not a hazard sign. Our approach is built on three pillars:

 - Dynamic Scaling — We adjust portfolio exposure as volatility shifts, allowing risk to expand      in calm periods and contract in turbulence.
- Continuous Engagement — We stay active across markets rather than stepping aside, so opportunity is never missed.
-  Systematic Adaptation — Our process is rules-driven, removing emotion from decision-making and ensuring we adapt to conditions rather than react to headlines.

Volatility in global markets is inevitable. The question is whether we let it control us, or whether we learn to control our response.  For us, volatility is neither purely friend nor foe. It is both and that is exactly why it is worth mastering.  In investing it is not the storm that decides the destination. It is how we set the course.