Analysis of Equity β Principal Components in Low Risk Framework: New Results and Prospectives

37 Pages Posted: 15 Nov 2017

See all articles by Antonio Amendola

Antonio Amendola

Intermonte Sim

Dennis Montagna

University of Pavia - Department of Economics and Business Sciences

Mario Maggi

University of Pavia - Department of Economics and Management; University of Pavia - Department of Economics and Management

Date Written: November 12, 2017

Abstract

With our work we want to exploit the so called "Beta anomaly" regarding the risk-reward relationship. Starting from the some evidences that so called Low Beta strategies generate, we decompose the formula in principal factors in order to asses the different drivers and contributions. Identifying Correlation and Standard Deviation as principal components we run an extensive analysis focusing on S&P 500 Index and relative members, covering the last 10 years. Based on that we assess the impact on the overall beta with Ordinary Least Square regression, performing also some portfolios backtests. We play basically 2 Long/Short strategies, ranking the stocks with correlation and with standard deviation, facing the results with other based on ranking. We extend our research looking in the different Sectors and finally we develop a new ideas in order to show the beta evolution respect market and reference sector, "Walking Beta". In the second paper we will extend our research, including a new application of the options combined with the high/low beta intuition.

Keywords: Asset Allocation, Quantitative Portfolio Management, CAPM, High Beta, Low Beta, Hedge Funds, Correlation, Linear Regression

JEL Classification: C15, C22, C53, C55

Suggested Citation

Amendola, Antonio and Montagna, Dennis and Maggi, Mario, Analysis of Equity β Principal Components in Low Risk Framework: New Results and Prospectives (November 12, 2017). Available at SSRN: https://ssrn.com/abstract=3069831 or http://dx.doi.org/10.2139/ssrn.3069831

Antonio Amendola

Intermonte Sim ( email )

Galleria de Cristoforis
Milan, 20121
Italy

Dennis Montagna (Contact Author)

University of Pavia - Department of Economics and Business Sciences ( email )

Corso Strada Nuova, 65
Pavia, +39 0382 984402 27100
Italy

Mario Maggi

University of Pavia - Department of Economics and Management ( email )

Via San Felice, 5
Pavia, PV 27100
Italy

HOME PAGE: http://economia.unipv.it/pagp/pagine_personali/maggma/moreinfo.htm

University of Pavia - Department of Economics and Management ( email )

Strada Nuova, 65
Pavia, 27100
Italy

HOME PAGE: http://economia.unipv.it/pagp/pagine_personali/maggma/moreinfo.htm

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