Diversifying Diversification: Downside Risk Management with Portfolios of Insurance Securities
19 Pages Posted: 24 Jan 2021
Date Written: November 25, 2020
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: Suggested Citation