A Factor-Based Approach to Diversifying Oil Exposure

Risk & Reward, 2019, 2nd issue, pp. 4-9

8 Pages Posted: 11 Jul 2019

See all articles by Harald Lohre

Harald Lohre

Robeco Quantitative Investments; Lancaster University Management School

Erhard Radatz

Invesco

Carsten Rother

Invesco; University of Hamburg

mark humphreys

Invesco Investment Solutions

Date Written: June 28, 2019

Abstract

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

Lohre, Harald and Radatz, Erhard and Rother, Carsten and humphreys, mark, A Factor-Based Approach to Diversifying Oil Exposure (June 28, 2019). Risk & Reward, 2019, 2nd issue, pp. 4-9, Available at SSRN: https://ssrn.com/abstract=3417165

Harald Lohre (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3011 AG
Netherlands

Lancaster University Management School

Bailrigg
Lancaster LA1 4YX
United Kingdom

HOME PAGE: http://www.lancaster.ac.uk/lums/people/harald-lohre

Erhard Radatz

Invesco ( email )

An der Welle 5
Frankfurt am Main, 60322
Germany

Carsten Rother

Invesco ( email )

An der Welle 5
Frankfurt am Main, 60322
Germany

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Mark Humphreys

Invesco Investment Solutions ( email )

Portman square
London, GA
United Kingdom

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