FACTOR RISK MANAGEMENT
Factors, like equity markets, can have significant multi-year drawdowns.
We focus on improving the risk-return ratios of factors with a sophisticated risk-management system, which supports investors in their risk premia allocation process.
Based on the latest scientific research, proprietary insights from trading factors, and technology we provide daily risk assessment for:
- Value, Size, Momentum, Low Volatility, Quality and Growth factors
- US, Europe, UK, Japan, Australia, Hong Kong & Singapore
The factor risk reports include historical performance, factor snapshots, and current allocation recommendations. We hold monthly factor update calls and also provide data as a service as well as tailored factor solutions.
MOMENTUM EUROPE FACTOR (LONG/SHORT)
IMPROVING THE RISK-RETURN RATIO
CASE STUDY: SIZE FACTOR EUROPE (LONG / SHORT)
The case study shows the performance of the Size factor (Long/Short) in Europe between May 2016 and 2017. The risk-managed factor performance mirrored the unadjusted performance most of the time, but managed to avoid some of the drawdowns in periods of high risk during which the recommendation was to reduce the factor allocation to zero and go into cash.
SIZE FACTOR EUROPE (LONG/SHORT): PERFORMANCE
The risk-managed Size factor outperformed the unadjusted Size factor in that period, however, that is not the objective of the risk-management system, which aims at improving the risk-return ratios and reducing drawdowns.
SIZE FACTOR EUROPE (LONG/SHORT): RISK-RETURN RATIOS
The chart below shows the risk assessment of the Size factor (Long/Short) in Europe over the same time frame which was mostly characterised by periods of low and average risk. The risk assessment is designed to be implemented in realistic time frames for portfolio management under the constraint that overtrading and too frequent changes should be avoided.
SIZE FACTOR EUROPE (LONG/SHORT): RISK ASSESSMENT
The chart below illustrates that the risk-management system managed to significantly reduce the maximum drawdown of the Size factor during this time period, achieving its objective.
SIZE FACTOR EUROPE (LONG/SHORT): MAX DRAWDOWNS
The following research report might be interest: White Paper: Factor Allocation Models.
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