Outperforming Equal Weighting

11 Pages Posted: 20 Dec 2023

See all articles by Antonello Cirulli

Antonello Cirulli


Patrick S. Walker

University of Zurich, Department of Banking and Finance; OLZ AG

Date Written: December 19, 2023


The equally-weighted strategy is a popular benchmark in academic studies to evaluate the merit of optimized portfolios or investment strategies. This naive diversification approach has been shown to outperform many more sophisticated portfolios, despite being trivial in the sense that no computations are required, and thus has also caught the interest of practitioners. We demonstrate that the equally-weighted stock portfolio can be consistently enhanced by avoiding negative exposure to some of the most prominent factor anomalies documented in asset pricing literature. Remarkably, this can be achieved while preserving the simplicity of the portfolio construction process. Specifically, we introduce three simple long-only portfolios that rely solely on historical return data. These portfolios exhibit slight deviations from the equally-weighted strategy, yet they consistently generate significantly higher risk-adjusted returns in realistic out-of-sample assessments. Consequently, our research offers the most straightforward illustrations to challenge the prevailing notion that outperforming the equally-weighted strategy is difficult. Moreover, these findings carry implications for the selection of benchmarks in both academic studies and practical investment management.

Keywords: Naive Diversification, Equally Weighted Portfolio, Momentum Anomaly, Low-Volatility Anomaly, Portfolio Optimization

JEL Classification: C52, D53, G11, G14

Suggested Citation

Cirulli, Antonello and Walker, Patrick S., Outperforming Equal Weighting (December 19, 2023). Available at SSRN: https://ssrn.com/abstract=4669267 or http://dx.doi.org/10.2139/ssrn.4669267

Antonello Cirulli

OLZ AG ( email )

Gessnerallee 38
Zurich, Zurich 8001

Patrick S. Walker (Contact Author)

University of Zurich, Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, CH-8032

HOME PAGE: http://www.bf.uzh.ch/

OLZ AG ( email )

Gessnerallee 38
Zurich, Zurich 8001

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