When you strip the noise away, the real question is simple: volatility targeting is a sizing tool, not a free Sharpe upgrade. Mechanism: Most people hear "volatility targeting" and imagine a performance trick. In practice it is mostly a position-sizing rule that tries to keep portfolio risk from lurching around. $$ w_t = \frac{\sigma^{*}}{\hat{\sigma}_t} $$ Plain English: Target weight today is target volatility divided by estimated current volatility. Why it matters: That matters because unstable risk budgets usually create emotional decision-making long before they create return problems. Market translation: If a sleeve tied to $SPY doubles its realized volatility, the disciplined response is usually to cut exposure, not to rationalize the larger swings. Failure mode: The common mistake is treating lower realized drawdown as proof that the signal improved. Often the signal stayed the same and the leverage changed. Review question: Write down the state variable you would monitor first if this thesis started to drift. A lot of confusion disappears once you separate the headline from the mechanism.