A Factor-Based Approach to Diversifying Oil Exposure
Risk & Reward, 2019, 2nd issue, pp. 4-9
8 Pages Posted: 11 Jul 2019
Date Written: June 28, 2019
Institutional investors who are highly sensitive to oil price changes are keen to reduce their risk exposure without explicitly engaging in oil price hedging. We investigate a viable alternative that considers diversifying oil exposure by employing adequate market and style factors. In particular, we present a multi-asset multi-factor solution in which quality and low volatility style factors play a crucial role in mitigating oil risk exposure while increasing overall portfolio diversification.
Keywords: Style Factors, Factor Investing, Factor Completion, Maximum Diversification, Risk Parity
JEL Classification: G11, D81
Suggested Citation: Suggested Citation