Harry Markowitz’s modern portfolio theory has been a staple concept among many noncorrelated portfolio builders. The core concept is that an assets risk and returns profile should not be viewed in isolation, but rather how they integrate into a portfolio. JPMorgan’s Quantitative and Derivatives Strategy team thinks there is a better method to construct portfolios. In a 51-page research piece, they analyze the Hierarchical Risk Parity (HRP) method for developing a portfolio, benchmarking performance against four other methods, including Markowitz’s mean variance (MV) method. In the studies, the HRP portfolio method outperformed based on several noncorrelated standards.
Hierarchical Risk Parity - HRP portfolio diversification delivers better performance across a number...
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