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Insights.

Bored of 60/40?  Five alternative approaches to multi-asset investing

11/4/2019

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Risk-based strategies are an alternative approach to multi-asset investing.
For traditional asset-based strategies, such as a 60/40 equity/bond portfolio, asset weights drive risk characteristics.  For risk-based multi-asset strategies, risk characteristics drive asset weights.
The objectives of multi-asset risk-based strategies are derived from different branches of portfolio theory can be defined as follows
Minimum Variance: Aims to minimise the overall strategy volatility by using pairwise correlations and volatilities of stocks to provide a good proxy for the least risky portfolio in the Modern Portfolio Theory framework.
Risk Parity: Aims to achieve equal risk contribution from asset classes under the assumption of identical pair-wise correlations structures. The same as inverse volatility weighting.
Maximum Deconcentration: A naïve diversification strategy that aims at maximising the effective number of holdings, equivalent to minimising concentration.
Maximum Sharpe: Aims to combine assets to achieve a strategy with the highest risk-adjusted return in excess of the risk-free rate.
Maximum Decorrelation: Aims to minimise the volatility of a strategy assuming that individual volatilities are identical, thereby constructing the strategy based on correlation structure alone (solving for the least correlated strategy).
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http://www.elstonetf.com/store/p3/Multi-Asset_Indices%3A_risk-based_strategies.htm
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  • WHO WE ARE
    • About
    • Contact
    • Insights
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    • Press
  • WHAT WE DO
    • Portfolio Solutions >
      • Our Portfolios
      • Custom Portfolios
      • Retirement Portfolios
    • Fund Solutions >
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      • Custom Funds
      • Retirement Funds
    • Index Solutions >
      • Our indices
      • Custom Indices
      • Retirement Indices
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      • Portfolio Analytics
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      • Regulatory Research
    • CPD
  • WHO WE HELP
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