• Corpus ID: 246015903

Optimal trend following portfolios

  title={Optimal trend following portfolios},
  author={S{\'e}bastien Valeyre},
This paper derives an optimal portfolio that is based on trend-following signal. Building on an earlier related article, it provides a unifying theoretical setting to introduce an autocorrelation model with the covariance matrix of trends and risk premia. We specify practically relevant models for the covariance matrix of trends. The optimal portfolio is decomposed into four basic components that yield four basic portfolios: Markowitz, risk parity, agnostic risk parity, and trend following on… 

Figures and Tables from this paper



The Trend is Our Friend: Risk Parity, Momentum and Trend Following in Global Asset Allocation

We examine applying a trend following methodology to global asset allocation between equities, bonds, commodities and real estate. This strategy offers substantial improvement in risk-adjusted

Optimal allocation of trend following strategies

A Century of Evidence on Trend-Following Investing

In this article, the authors study the performance of trend-following investing across global markets since 1880, extending the existing evidence by more than 100 years using a novel data set. They

Risk Parity Portfolio vs. Other Asset Allocation Heuristic Portfolios

In this article, the authors conduct a horse race between representative risk parity portfolios and other asset allocation strategies, including equal weighting, minimum variance, mean–variance

Minimum-Variance Portfolio Composition

Empirical studies document that equity portfolios constructed to have the lowest possible risk have surprisingly high average returns. Clarke, de Silva, andThorley derive an analytic solution for the

Refined model of the covariance/correlation matrix between securities

A new methodology has been introduced to clean the correlation matrix of single stocks returns based on a constrained principal component analysis using financial data. Portfolios were introduced,

The Risk in Hedge Fund Strategies: Theory and Evidence from Trend Followers

Hedge fund strategies typically generate option-like returns. Linear-factor models using benchmark asset indices have difficulty explaining them. Following the suggestions in Glosten and Jagannathan

Size Matters: Tail Risk, Momentum, and Trend Following in International Equity Portfolios

The authors investigate the relationship between size and momentum across a wide range of international equity markets. They distinguish between relative momentum, where by assets are ranked

Carry and Trend in Lots of Places

Investors intrinsically know two fundamental principles of investing: (1) don’t fight the trend and (2) don’t pay too much to hold an investment. But do these simple principles actually lead to

Toward Maximum Diversification

Along with the ongoing effort to build market cap–independent portfolios, the authors explore the properties of diversification as a driver of portfolio construction. They introduce a measure of the