We've been hard at work in the lab this week (including research on hedging trend equity with options, managing portable beta risk with intraday correlations, and further bond premia studies), but unfortunately none of our work hit a milestone we deemed worthy of a short-term write-up.
So, we thought we'd share a piece from the library.
This week's research note takes a deeper dive into diversification within a tactical 90/60 portfolio that utilizes portable beta.
By breaking down the strategy into its passive holdings (a 50/50 stock/bond portfolio and U.S. Treasury futures) and active long/short overlays (trend equity, bond carry, bond momentum, and bond value), we gain a better understanding of how they interact and how each piece has performed historically.
Using a mean-variance framework, we arrive at an efficient frontier of the strategy components and assess the differences between the optimal portfolio and the tactical 90/60.
We enjoy looking into ways that investors can pursue capital efficiency while managing the additional risks that often entails and hope you will give it a read and let us know your thoughts.
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What We're Reading
→ TO SHORT OR NOT: "[U]sing the same Factors, a Long-Short implementation leads to superior risk-adjusted returns than its Hedged Long-Only counterpart, at least when Assets Under Management are not too large." Equity Factors: To Short Or Not To Short, That is the Question