Russell and Parametric Team up on Index Series

October 18, 2010 (PLANSPONSOR.com) - Russell Investments and Parametric Portfolio Associates have collaborated on a new index series that measures the return dispersion of a universe of securities.

The Russell–Parametric Cross-Sectional Volatility Indexes (CrossVol) relies on Russell’s global index construction rules and a new calculation methodology developed by Parametric, according to a press release.  

The new CrossVol Indexes are subdivided in the same fashion as the underlying Russell Indexes, covering each of the major regions such as Global, U.S., Developed ex-U.S., and Emerging Markets. Within each region, cross-sectional volatility is calculated for separate market capitalization tiers and investment styles, including all cap, large cap, small cap, value, and growth, as well as economic sectors.  

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Paul Bouchey, Director of Research at Parametric, said in the announcement: “We monitor cross-sectional volatility in our investment process to adjust the size of our active bets. It’s a core part of our process. Having it available in the form of indexes makes our analysis much easier to perform.”   

Bouchey explained that as cross-sectional volatility increases, the payoff for an active bet increases. A good bet, for example, will pay off more with high CrossVol and less with low CrossVol. Similarly, the loss resulting from a bad bet will be more in periods of high CrossVol, but lower in periods of low CrossVol.  

More information is at http://www.crossvol.com and http://beta.parametricportfolio.com/wp-content/uploads/2010/10/MeasuringAlphaPotential.pdf.

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