This’ll seem a bit repetitious to some readers, but it’s worth another mention: Vol control strategies have only just begun to add back risk exposures purged during this month’s growth scare.

I’ve been over this several times in recent days, and while I don’t want to belabor the point, trailing realized is starting to roll over, and that’s the crux of the issue.

Have a look at the figure below, which shows both 10-day and one-month rVol.

The shorter lookback already collapsed. But one-month’s just now turning. That’s important.

“[T]he upshot of the lingering elevation of one-month vol is that volatility-control strategies haven’t really started to add risk back yet,” Bloomberg’s Cameron Crise wrote Thursday, in a pretty good piece posted on the Terminal.

The key takeaway at this juncture is that barring another shock that elicits a meaningful range expansion for spot equities (and I’d be remiss not to mention Thursday’s tech selloff in that context), vol-control will be adding exposure over the next couple of weeks. The updated figures below, from Nomura’s Charlie McElligott, are a great annotated visual guide to this dynamic. (Click to enlarge them, as always.)

The chart on the left just shows the same turn in one-month realized, while the table on the right is the sensitivity / scenario analysis for vol-control buying across various windows and outcome distributions.

The upshot is that as long as the S&P averages a 1% daily move or less (and again, Thursday was a little rough), these strategies will be re-allocating to stocks for the foreseeable future. If, however, spot equities starts to move around such that daily changes average 1.5% or more, vol control would be a seller given the read through of an expanded outcome distribution for realized volatility.

Of course, these aren’t the only flows in the market. Indeed, they aren’t the only systematic flows in the market. Vol control re-risks on a lag. CTAs are the first movers, so to speak, and their job is largely done having (re)added a considerable amount of global equity futures exposure since the August 5 lows. Point being: Just because vol-control’s re-leveraging as realized vol recedes doesn’t necessarily mean higher stocks. This is just one piece of the flows puzzle.

But, as Crise wrote, it does “raise the specter of further demand for equity-index product as the early-August gyrations become less relevant for volatility calculations and these sort of strategies start to increase nominal risk.” It’s “plausible,” he went on, “that this sort of demand could provide a further tailwind to the market.”

Notably, a regression analysis presented by Crise in the same piece suggested very little, if any, predictive power for forward S&P returns from prospective increases in nominal exposure from the target-vol universe.

So, to reiterate: This is just one factor in the equity supply-demand equation. And if the market moves around too much — i.e., if realized volatility doesn’t ultimately relax — this latent buying could be muted or, if things were to get really dicey again, might even morph into (more) selling.