A lot of attention is centred around inflation in the academic literature. If the inflation is low and oscillates around central banks’ targets, there is not a big fuss around it. However, when inflation gets high, it becomes a hot topic among investors.

As we have promised, we present a short article as an introduction into the methodology of the Quantpedia Pro CPPI reports. Quantpedia Pro clients can use the model portfolio built in the Portfolio Manager as a risky asset to test various variants – Basic CPPI, Drawdown Based CPPI and Dynamic Multiplier CPPI.

We present a short article as an insight into the methodology of the Quantpedia Pro report – this time for the Markowitz Portfolio Optimization. As usually, Quantpedia Pro allows the optimization of model portfolios built from the passive market factors (commodities, equities, fixed income, etc.), systematic trading strategies and uploaded user’s equity curves. The current report helps with the calculation of the efficient frontier portfolios based on the various constraints and during various predefined historical periods. The backtests of the periodically rebalanced Minimum-Variance, Maximum Sharpe Ratio and Tangency portfolios will be available at the beginning of July.
Additionally, there is a Case Study dedicated to this Quantpedia Pro tool.

This article is a primer into the methodology we use for the Portfolio Risk Parity report, which is a part of our Quantpedia Pro offering. We explain three risk parity methodologies – Naive Risk Parity (inverse volatility weighted), Equal Risk Contribution and Maximum Diversification. Quantpedia Pro allows the design of model risk parity portfolios built not just from the passive market factors (commodities, equities, fixed income, etc.) but also from systematic trading strategies and uploaded user’s equity curves.

Do not put all your eggs in one basket is a common phrase that resonates among investors worldwide. The errand of such a famous saying is simple, diversify! However, how to diversify, if in the crisis, everything seems to be highly correlated? Last week, we wrote a blog about the Macro Factor Risk Parity, but it certainly is not the only option. Real assets such as REITs, various commodities, and the ever-popular gold are commonly added into portfolios as diversifiers. However, Parikh and Zhan (2019) research examine a much bigger set of real assets than the aforementioned evergreens. Real assets like Timberland, Farmland, Infrastructure, Natural Resources and many others are presented in the paper. All those assets have different sensitivities to inflation, GDP growth, equities or bonds. Therefore, real assets could have a value in the portfolios to protect an investor from inflation, stagnation, or simply distributing the eggs mentioned above in many baskets. All these strategies are presented in the paper and compared to equities, bonds and traditional 60/40. 

Gold is a hot topic nowadays, but that is not a surprise given the worldwide situation. Gold is by the majority considered as a hedge, safe haven and often recognized for its ability to preserve the value in the long term. However, gold itself is not the only gold-related investable asset. There are numerous gold-related stocks – producers, explorers and developers. Common sense might suggest that the price of such stocks should reflect the gold prices, but the novel research by Baur and Trench (2020) shows that this logic is not always correct. Results suggest that gold equities cannot be considered as safe havens and investors differentiate between producers, explorers and developers during regular times. On the other hand, during the recent (and lasting) stressful COVID period, all types of gold stocks moved similarly to gold.

Authors: Dirk G. Baur and Allan Trench

Title: Not all Gold Shines in Crisis Times – COVID-19 Evidence