Very interesting. A few days ago, on another blog I was discussing how typical investors equate volatility and risk. The higher the volatility, they think, the higher the risk. Often true. However, the corrollary lower volatility means lower risk is wrong I say. Indeed, extremely low volatility investors should treat as a big red flag.

I’m going to add AIG to my volatility-risk anecdote list.

Thinking about it a little, I’m going to guess this mistaken belief took hold because between differing asset classes (stocks vs. bonds vs. commodities; individual issues vs. mutual funds) volatility and risk are positively corrolated. But one should not extrapolate it too far within an asset class.