This is a summary of links featured on Quantocracy on Monday, 07/06/2020. To see our most recent links, visit the Quant Mashup. Read on readers!
-
Beyond Risk Parity: The Hierarchical Equal Risk Contribution Algorithm [Hudson and Thames]As diversification is the only free lunch in finance, the Hierarchical Equal Risk Contribution Portfolio (HERC) aims at diversifying capital allocation and risk allocation. Briefly, the principle is to retain the correlations that really matter and once the assets are hierarchically clustered, a capital allocation is estimated. HERC allocates capital within and across the right number of
-
Heads I Win, Tails I Hedge [Flirting with Models]For hedging strategies, there is often a trade-off between degree, certainty, and cost. Put options have high certainty and typically offer a high degree of protection, making them costly to hold and roll over the long run. In this note, we briefly explore the application of different tactical signals to a 9-month, 25-delta rolling put strategy in an effort to reduce long-term costs. We find that
-
Factor Olympics 1H 2020 [Factor Research]Momentum & Quality are leading the performance scoreboard in 1H 2020 Value & Size generated negative returns, like in recent years Low Volatility failed to preserve capital during the COVID-19 crisis INTRODUCTION We present the performance of five well-known factors on an annual basis for the last 10 years. We only present factors where academic research supports the existence of positive