Risk-Based Asset Allocation in Factor Investing: Exploring the Inverse Factor Volatility Strategy
Abstract
This study evaluates the effectiveness of the Inverse Factor Volatility strategy within the context of factor investing, comparing its performance to the conventional Risk Parity strategy. Utilizing quantitative techniques, the research constructs and assesses portfolios based on both strategies, employing data from five individual equities spanning the years 2000 to 2022. The findings indicate that, compared to Risk Parity, Inverse Factor Volatility offers superior drawdowns, risk-adjusted returns, and mean returns. These results suggest that Inverse Factor Volatility may be a more effective strategy for portfolio management and could represent an advancement over traditional factor investing methods. The conclusions of this study hold significant implications for portfolio managers seeking to optimize their investment strategies.
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Copyright (c) 2024 Claudia Perez
This work is licensed under a Creative Commons Attribution 4.0 International License.
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