DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P) 0.Ī letter to our readers Part I of DB Handbook of Portfolio Construction From our extensive interaction with our institutional clients globally, we have noticed an interesting pattern. Investors should consider this report as only a single factor in making their investment decision. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Deutsche Bank does and seeks to do business with companies covered in its research reports. Eligible investors may be able to get exposure through over-the-counter products. investors: US regulators have not approved most foreign listed stock index futures and options for US investors. The superiority of risk-based allocations In almost all contexts (both multi-asset and equities), risk-based allocations significantly outperform capitalization-weighted benchmarks, with higher Sharpe ratios, lower downside risk, better diversification, and less tail dependence, which makes the portfolio less likely to suffer in a liquidity crisis. Javed Jussa Zongye Chen Miguel-A Alvarez North America: +1 2 Europe: +44 4 Asia: +852 2203 6990
#Axioma risk model handbook pdf full
Encyclopedic coverage of risk-based portfolio construction for both multi-asset and equity portfolios In this research, we conduct a comprehensive portfolio backtesting of a full suite of risk-based portfolio construction techniques, from simple (equally weighted and inverse volatility), traditional (risk parity, global minimum variance, and maximum diversification), to innovative (minimum tail dependence, minimum CVaR, robust minimum CVaR, etc.) for a broad range of contexts in multi-asset (asset allocation, bonds, commodities, alternative betas), country/sector (countries, economic low risk countries, global sectors, US sectors, European sectors, global industries, and regions x sectors), and equity portfolios (US, Europe, Asia ex Japan, EM, and global).
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Portfolios constructed by minimizing CVaR are ex ante more conservative and have delivered the best ex post performance. The conditional value-at-risk (or CVaR) defines risk in a different way from volatility, by emphasizing tail risk. The minimum tail dependence portfolio attempts to find assets that are less dependent to each other at the tail level to avoid crowded trades. These techniques recognize the fact that asset returns are not normally distributed. In this paper, we introduce two innovative techniques to accomplish this goal.
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Innovative techniques The heart of portfolio construction is about how to achieve better diversification and risk reduction. Part 1: Risk-Based Portfolio Construction Techniques Rochester Cahan, CFA
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DB Handbook of Portfolio Construction: Part 1