Using Risk Premia Strategies For Greater Portfolio Diversification

Risk premia investment strategies, along with other alternative strategies, have gained popularity recently, even though they don’t outperform stock picking. A detailed report from Societe Generale quants gives an in-depth explanation on how risk-premia tactics can help investors give their portfolios more meaningful diversification.

Growth in risk premia strategies

“The idea of harvesting risk-premia across different asset classes beyond the traditional assets of equities, bonds, credit etc. is not particularly new,” says the report. “Risk models have been decomposing returns into factor exposures and quants have been compiling factor-based stock portfolios for decades.” It’s easy to imagine that the interest in risk premia strategies has been growing because it has proven to be more effective than traditional...