Comparing Mean-Variance Portfolios and Equal-Weight Portfolios for Major US Equity Indexes

13 Pages Posted: 12 Jun 2019

See all articles by Haotian Cai

Haotian Cai

Kensho Technologies

Anatoly B. Schmidt

Kensho Technologies; Financial Risk and Engineering, NYU School of Engineering

Date Written: May 28, 2019

Abstract

We compared performance of Pearson’s correlations based (PeMVPs) and partial correlations based (PaMVPs) mean variance portfolios (MVPs) with equal-weight portfolios (EWPs) for several US equity indexes. We found that performance of MVPs and EWPs depends on two factors: the constituents of the underlying equity index and its holding period. When a market-wide index contained super-high growth technology stocks, such as FAANNG in the S&P 500, PeMVP being a concentrated growth portfolio unsurprisingly outperformed more diversified PaMVP and EWP. However, when FAANNG were dropped from the S&P 500, and even in the case of the S&P 500 Growth (that lacks relatively low-performing value stocks), PeMVP did not outperform PaMVP at the three- and six-month holding periods. Moreover, at a shorter, one-month holding period, PaMVP was statistically superior. For other equity indexes considered in this work, PaMVP always outperformed PeMVP, and EWP could outperform PeMVP at shorter holding periods.

Keywords: mean variance portfolio, equal weight portfolio, partial correlations, out-of-sample performance

JEL Classification: G11

Suggested Citation

Cai, Haotian and Schmidt, Anatoly B., Comparing Mean-Variance Portfolios and Equal-Weight Portfolios for Major US Equity Indexes (May 28, 2019). Available at SSRN: https://ssrn.com/abstract=3395359 or http://dx.doi.org/10.2139/ssrn.3395359

Haotian Cai

Kensho Technologies ( email )

One World Trade Center
Suite 76G
New York, NY 10007
United States

Anatoly B. Schmidt (Contact Author)

Kensho Technologies ( email )

World Trade Center, Suite 46J
NYC, NY 10007
United States

Financial Risk and Engineering, NYU School of Engineering

NY
United States

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