Diversifying Diversification: Downside Risk Management with Portfolios of Insurance Securities

19 Pages Posted: 24 Jan 2021

Date Written: November 25, 2020

Abstract

Investors are always in search of diversifying securities and strategies to assist in downside risk management. We consider six popular diversifying securities, i.e. Gold, Swiss Franc, Japanese Yen, Bond Futures, S&P 500 80% strike Put Options, and Trend Following strategies in this paper. Using fifty years of data, we demonstrate that a portfolio approach to diversification strategies results in more robust outcomes when combined with a portfolio which has large equity exposure. While each of the individual securities can be more or less beneficial in specific periods and environments, we conclude that a simple portfolio approach to diversification, whether optimized or not, allows investors to robustly manage risk while not being overly concentrated.

Keywords: Diversification, Hedging, Risk Mitigation

JEL Classification: G00

Suggested Citation

Bhansali, Vineer and Holdom, Jeremie, Diversifying Diversification: Downside Risk Management with Portfolios of Insurance Securities (November 25, 2020). Available at SSRN: https://ssrn.com/abstract=3740222 or http://dx.doi.org/10.2139/ssrn.3740222

Vineer Bhansali (Contact Author)

LongTail Alpha, LLC ( email )

500 Newport Center Drive
Suite 820
Newport Beach, CA 92660
United States

Jeremie Holdom

LongTail Alpha, LLC ( email )

500 Newport Center Drive
Suite 820
Newport Beach, CA 92660
United States

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