%0 Journal Article
%A Qian, Edward
%T Tactical Asset Allocation with Pairwise Strategies
%D 2003
%R 10.3905/jpm.2003.319918
%J The Journal of Portfolio Management
%P 39-48
%V 30
%N 1
%X An alternative approach to quantitative tactical asset allocation (TAA) is based on time series forecasting models and mean-variance optimization. The central concept is pairwise TAA, and the correct metric for assessing forecast quality is the pairwise information coefficient. TAA using mean-variance optimization is generally equivalent to a linear combination of pairwise TAA, with the relative weights of the pairs in the combination directly connected to the covariance matrix used in the optimization. TAA managers should avoid using a covariance matrix without knowing its implied pairwise weights, but instead should use pairwise information to influence the choice of the pairwise weights. The expected long-term performance of TAA strategies for a given set of pairwise weights as well as optimal sets of pairwise combinations that attain the maximum information ratio is also derived.
%U https://jpm.pm-research.com/content/iijpormgmt/30/1/39.full.pdf