The first risk parity method we picked as an illustration is the popular Equal Risk Contribution method.
Momentum drawdown pro#
Once again, Quantpedia Pro portfolio analysis offers various different risk parity methods, which are ready-to-be-applied to your data. For more details about the methodology, see Quantpedia’s Volatility Targeting Primer.Įqual Risk Contribution. The basic version is applied at the portfolio level to the entire – equally weighted – portfolio of our 5 strategies. For the sake of brevity, we will be reporting here only the basic volatility targeting. Quantpedia Pro toolbox provides several different volatility targeting methods. We picked here five examples of strategy allocation methods and show here what results they produce when applied to five US stock momentum strategies. The figure above depicts the equity curve and basic risk and return statistics of our 5 strategies combined via equally weighted allocation. Our benchmark for further calculations will be an equal weighted strategy benchmark. With 5 strategies this makes for an easy equal 20% allocation for each strategy. One of the most straightforward benchmarks for strategy allocation is simply weighing the strategies equally.
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How to combine such strategies? And how to benchmark them? Equal Weight Strategy Allocation To briefly sum up the logic – the first strategy looks at the traditional long-short momentum, the second strategy uses regression residuals instead of classical price momentum, the third strategy is long-only and buys only stocks at their historical highs, the fourth strategy combines different momentum horizons into a more concentrated portfolio and the last strategy is based on the “peer momentum” of the most related stocks based on their fundamentals.Īs we can see from the above – the strategies are somewhat similar, yet not entirely. Algo Trading Data Discounts are available exclusively for Quantpedia’s readers. As it may be observed from the Quantpedia Pro’s correlation report below, some of the strategies are not even positively correlated, while some of them are slightly positively correlated. More specifically, we will be analyzing and combining 5 different US stock momentum strategies:Īll of the above mentioned strategies utilize the idea of momentum and apply it to US single stock universe, however, each one in a different way. Equity Momentum StrategiesĪs we already mentioned above, we will focus today on equity momentum strategies. Different variants of Risk Parity, Volatility Targeting, CPPI, Markowitz Mean-Variance optimization, or Clustering are all part of the toolbox, so let’s now take a look at an example use case. Quantpedia Pro offers several easy-to-use tools to instantly analyze various popular strategy allocation methods, and it can save you some coding as numerous asset allocation methods are already pre-coded there for you to try. Are we combining equity and bond strategies together? Are we combining equity strategies, with each one having an entirely different logic? Or do we rather need to assign weights to strategies that are similar in nature yet still different? We will focus this article on the last option – combining similar yet different strategies. The “appropriate combination” highly depends on the type of strategies we are about to combine. There is no single correct solution to this task, but there are a few methods that we can try. The goal of such “strategy allocation” usually is to achieve the best risk-adjusted return possible. So, let’s imagine we already have a set of profitable investment strategies, and we need to combine them. Today we will again talk more about the portfolio management theory, and we will focus on techniques for combining quantitative strategies into one multi-strategy portfolio.
15.November 2021 asset allocation case-study factor allocation factor investing momentum momentum in stocks own-research theory of portfolio management
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