RT Journal Article
SR Electronic
T1 Risk Parity and Beyond—From Asset Allocation to Risk Allocation Decisions
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 108
OP 135
DO 10.3905/jpm.2022.1.340
VO 48
IS 4
A1 Romain Deguest
A1 Lionel Martellini
A1 Attilio Meucci
YR 2022
UL https://pm-research.com/content/48/4/108.abstract
AB In this article, the authors define the number of uncorrelated bets embedded within a given portfolio of N assets as the exponential of the entropy of the portfolio exposure to N uncorrelated factors. They present a set of formal results regarding the existence and uniqueness of portfolios designed to achieve the maximum effective number of bets. They also provide empirical evidence that incorporating constraints or target levels in a portfolio’s effective number of bets generates an improvement in out-of-sample risk-adjusted performance with respect to standard mean–variance analysis.