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Insights.

risk parity dominates risk-adjusted returns in 3q20

13/10/2020

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[2 min read.  Buy the full report]

We compare the performance of risk-weighted multi-asset strategies relative to a Global Equity index and our Elston 60/40 GBP Index, which reflects a traditional asset-weighted approach.

Of the risk-weighted strategies, Elston Dynamic Risk Parity Index delivered best -1Y total return at +3.03%, compared to +5.01% for global equities and +0.95% for the Elston 60/40 GBP Index.
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Source: Bloomberg data, as at 30/09/20

On a risk-adjusted basis, Risk Parity delivered a -1Y Sharpe Ratio of 0.27, compared to 0.18 for Global Equities, meaning Risk Parity delivered the best risk-adjsuted returns for that period.
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Risk Parity also delivered greatest differentiation impact of the risk-weighted strategies with a -45.8% reduction in correlation and -77.3% reduction in beta relative to Global Equities.  This enables "true diversification" whilst maintaing potential for returns.  By contrast the Elston 60/40 Index, whilst successfully reducing beta by -40.9%, delivered a correlation reduction of only -2.9%.  Put differently, a traditional 60/40 portfolio offers negligbile diversification effect in terms of risk-based diversification through reduced correlation.
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The periodic table shows lack of direction amongst risk-weighted strategies in the quarter.
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​All data as at 30th September 2020
© Elston Consulting 2020, all rights reserved
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  • WHO WE ARE
    • About
    • Contact
    • Insights
    • Events
    • Press
  • WHAT WE DO
    • Portfolio Solutions >
      • Our Portfolios
      • Custom Portfolios
      • Retirement Portfolios
    • Fund Solutions >
      • Our Funds
      • Custom Funds
      • Retirement Funds
    • Index Solutions >
      • Our indices
      • Custom Indices
      • Retirement Indices
    • Research >
      • Portfolio Analytics
      • Research Library
      • Regulatory Research
    • CPD
  • WHO WE HELP
    • Financial Advisers
    • Discretionary Managers
    • Asset Managers
    • Asset Owners
    • 中文