Preferred Portfolios: An Improved Blueprint to Construct Multi Strategy Portfolios

18 Pages Posted: 24 Apr 2020

Date Written: March 30, 2020

Abstract

This paper introduces a blueprint for combining individual strategies into a robust portfolio using five principles.

» Continued research is paramount to replenish individual strategies as performance wanes over time

» Identifying and classifying strategies correctly based on their dynamic return characteristics leads to temporal validity in portfolio performance

» Employing strategies on a diverse set of markets increases the opportunity set available

» Understanding the benefits and limitations of diversification guides manager decisions for research and resource allocation

» Sufficient time is required to give portfolios the opportunity to prosper from the skill in the investment program

Together these five elements build the basis of Statistically Applied Trading (Saτ).

Keywords: Quantitative Trading, Portfolio Construction, Benefits of Diversification

JEL Classification: G11

Suggested Citation

Kestner, Lars N., Preferred Portfolios: An Improved Blueprint to Construct Multi Strategy Portfolios (March 30, 2020). Available at SSRN: https://ssrn.com/abstract=3565106 or http://dx.doi.org/10.2139/ssrn.3565106

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