Risk Parity and Diversification

Qian, Edward E.

doi:10.3905/joi.2011.2011.1.010

Cited by 17 publications

(24 citation statements)

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“…Therefore, the diversification is achieved by a weight vector, which is characterized by a distribution of less concentrated portfolio. The ERC portfolio was introduced in the literature by Qian (2005Qian ( , 2006Qian ( , 2011 and their properties were analyzed by Maillard et al (2010). Maillard et al (2010) showed that when it comes to the standard deviation of the portfolio, the ERC solution takes an intermediate position between a minimum-variance portfolio and equally weighted portfolio.…”

Section: Equal Risk Contributed Portfoliomentioning

confidence: 99%

“…For this purpose, we considered a number of optimization models: a) the classical mean-variance approach (Markowitz, 1952(Markowitz, , 1959 and the minimum variance approach (Jagannathan and Ma, 2003); b) robust optimization techniques, as the most diversified portfolio, (see Choueifaty and Coignard, 2008;and Choueifaty et al, 2013) and the equally-weighted risk contributions portfolios (see Qian, 2005Qian, , 2006Qian, , 2011; c) portfolio optimization based on Conditional Value at Risk, "CVaR" Uryasev, 2000, 2002;Alexander and Baptista, 2004;Quaranta and Zaffaroni, 2008); d) functional approach based on risk measures such as the "Maximum draw-down" (MaxDD), the "Average draw-down" (AvDD), and the "Conditional draw-down at risk" (CDAR), all proposed by Chekhlov et al (2000Chekhlov et al ( , 2005. As well as the Conditional draw-down at risk "MinCDaR" (see Cheklov et al, 2005;and Kuutan, 2007); e) Young (1998)'s minimax optimization model, based on minimizing risk and optimizing the risk/return ratio; f) application of Copula theory to build the minimum tail-dependent portfolio, where the variance-covariance matrix is replaced by lower tail dependence coefficient (see Frahma et al, 2005;Fischer andDörflinger, 2006, andStadtmüller, 2006); g) a defensive approach to systemic risk by beta strategy ("Low Beta").…”

Section: Compared the Cvar And Conditionalmentioning

confidence: 99%

“…Choueifaty and Coignard (2008) and Choueifaty et al (2013) proposed an approach based on the portfolio with the highest ratio of diversification. In addition, Qian (2005Qian ( , 2006Qian ( , 2011 introduced the portfolio with equal contribution to risk, which assigns different weights to assets so that their contribution to the overall volatility of the portfolio is proportional; the properties of this strategy were analyzed by Maillard et al (2010). These methodologies aim to defend against the possible uncertainty in the parameters of the problem given that these are not exactly known.…”

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confidence: 99%

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Portfolios in the Ibex 35 Index: Alternative Methods to the Traditional Framework, a Comparative with the Naive Diversification in a Pre- and Post- Crisis Context

2015

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In this paper, we present an analysis of the effectiveness of various portfolio optimization strategies Simón Sosvilla-RiveroComplutense University of Madrid sosvilla@ccee.ucm.es Abstract:In this paper, we present an analysis of the effectiveness of various portfolio optimization strategies applied to the stocks included in the Spanish Ibex 35 index, for a period of 14 years, from 2001 until 2014. The period under study includes episodes of volatility and instability in financial markets, incorporating the Global Financial Crisis and the European Sovereign Debt Crisis. This implies a challenge in portfolio optimization strategies since the methodologies are restricted to the assignment of positive weights. We have taken for asset allocation the daily returns with an estimation window equal to 1 year and we hold portfolio assets for another year. This paper attempts to influence the discussion over whether the naive diversification proves to be an effective strategy as opposed to portfolio optimization models. For that, we evaluate the out-of-sample performance of 15 strategies for asset allocation in the Ibex 35 index, before and after of the Global Financial Crisis. Our results suggest that a large number of strategies outperform to the 1/N rule and to the Ibex 35 index in terms of return, Sharpe ratio and lower VaR and CVaR. The mean-variance portfolio of Markowitz with shortsale constraints, it is the only strategy that renders a Sharpe ratio statistically different to Ibex 35 index in the

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Section: Equal Risk Contributed Portfoliomentioning

confidence: 99%

Section: Compared the Cvar And Conditionalmentioning

confidence: 99%

mentioning

confidence: 99%

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Portfolios in the Ibex 35 Index: Alternative Methods to the Traditional Framework, a Comparative with the Naive Diversification in a Pre- and Post- Crisis Context

2015

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“…Namely, this portfolio model does not have to predict future return rates. This concept is based on the risk parity portfolio model [5,6], which also does not predict return rates but equalizes the risk contributions of each asset because these risk contributions obtained by the mean-variance portfolio model [1] are often biased to a few assets. In this case, even if the Sharpe ratio [7] is sufficiently large, this portfolio is actually dangerous.…”

Section: Introductionmentioning

confidence: 99%

Principal Component Analysis for the Nonlinear Portfolio Model

Morimoto

Saito

Satoshi

et al. 2014

Journal of Signal Processing

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The present study improves the nonlinear portfolio model by using principal component analysis. To enhance the portfolio effect of spreading risks efficiently, we aim for lower correlations among each asset movement. For this reason, we apply the principal components of assets to the nonlinear portfolio model, which uses nonlinear prediction to estimate future movements. However, because we are not sure whether these principal components have nonlinearity, we perform Fourier-shuffled surrogate tests on the principal components. Finally, we confirm the efficiency of our nonlinear principal-component portfolio model through some investment simulations with real financial data.

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“…As Qian (2011), from a Markowitz Mean-Variance Portfolio Theory, the risk parity portfolio will be the optimal portfolio if the underlying components have equal Sharpe ratios and their returns are not correlated.…”

Section: Anexos De Cuadrosmentioning

confidence: 99%

Alternative investments for the retail investor in Spanish equities mutual funds

Peñalver¹

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AgradecimientosMe gustaría agradecer su apoyo a todos los que han hecho posible la finalización de este trabajo de doctorado a estas alturas de mi vida y con todas las dificultades que ello ha conllevado: a Jason Laws, James Eden y Christian Dunis que en John Moores University metieron en mí el gusanillo de las finanzas cuantitativas, a la Universidad de Alicante donde hace ya más de diez años empecé esta andadura y a la Universidad Jaume I de Castellón, y especialmente a la figura de Juan Carlos Matallín, por sus consejos y ayuda en esta difícil tarea de lidiar lo teórico con lo práctico.Pero mi verdadero agradecimiento y mi eterna gratitud van hacia esas personas sin las cuales esto no hubiese sido posible. Primero a los que me han aguantado día tras día: a ella por hacerme mejor persona cada día y aguantar mis nervios e histerias cuando el estrés aprieta, y también a él por darme la alegría para seguir, para mejorar y para nunca darme por vencido ante el brillo de sus ojos. Thank you mate! Y por último a ellos, a los que me han hecho quien soy y los que dieron mucho para que esto sea posible. Ella disfrutará este día, él a su modo también; pero sin que sirva de menosprecio, esto, como tantas cosas que hago en mi vida, va por él, por el que siempre está presente, por el que a su modo me fue guiando hacia esta meta, y por el que me siento orgulloso de ser quien soy. El importante crecimiento de los fondos de inversión tanto a nivel nacional como en otros mercados ha motivado también el desarrollo de una amplia literatura dentro del ámbito de las Finanzas cuyo objetivo ha sido el análisis de la gestión de los fondos, que en ocasiones se ha identificado con el análisis de su eficiencia (performance). Sin embargo, numerosos estudios a lo largo de los años han demostrado que los inversores han sido incapaces de obtener todas las 1 Según información publicada por la agencia EFE en su publicación Expansión (http://www.expansion.com/mercados/fondos/2017/04/11/58ecdd7946163f2f688b45a8.html) 2 rentabilidades que los grandes gestores consiguen en el largo plazo, principalmente debido a sus malas decisiones a la hora de entrar y salir de dichos fondos de inversión. Otras causas podrían ser la pobre cultura financiera del inversor no institucional o la gran aversión al riesgo que presentan casi todos los inversores en sus decisiones de inversión. AcknowledgementsTodos estos datos junto con mi experiencia personal como asesor de varios fondos de inversión 2 y sociedades de inversión colectiva (SICAV), además de mi experiencia durante muchos años como inversor no institucional, provoca en mí el interés por analizar si algunas de las estrategias de inversión utilizadas por los grandes inversores institucionales pueden ser llevadas a cabo por el inversor no institucional utilizando como vehículo de inversión principal los fondos de renta variable española.Pero este trabajo pretende ir más allá de la simple validación teórica de algunas de las diferentes estrategias de activos aplicadas a la gestión de fondos de inversión; pr...

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Risk Parity and Diversification

Cited by 17 publications

References 0 publications

Portfolios in the Ibex 35 Index: Alternative Methods to the Traditional Framework, a Comparative with the Naive Diversification in a Pre- and Post- Crisis Context

Portfolios in the Ibex 35 Index: Alternative Methods to the Traditional Framework, a Comparative with the Naive Diversification in a Pre- and Post- Crisis Context

Principal Component Analysis for the Nonlinear Portfolio Model

Alternative investments for the retail investor in Spanish equities mutual funds

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