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Is the hierarchical risk parity (HRP) portfolio the optimal choice for passive investors? A comparative analysis of 60/40, HRP, and allweather portfolio
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Resumo(s)
In a world shaped by economic instability, geopolitical conflicts, and volatile interest
rates, many investors are gravitating towards more passive investment strategies in search
of stability. This thesis explores a compelling question: Can innovative portfolio methods
such as the Hierarchical Risk Parity (HRP) beat conventional models in this time of
unpredictability while providing a secure refuge for passive investors?
Through a detailed analysis of three distinct portfolios, covering the period from
January 1, 2014, to January 1, 2024 — a decade marked by both economic crisis and
recoveries — this research investigates whether the HRP model, with its automated, riskparity-driven structure, provides a superior solution compared to more conventional
approaches like the All-Weather portfolio and the 60/40 one. Advanced libraries such as
arch, pandas, numpy, scikit-learn and Yfinance were used along with Python to achieve
a meticulous and meticulous numerical analysis.
Key performance metrics including returns and maximum drawdown were used to
evaluate the portfolios at first. Further, more complex statistical analyses were performed,
including VaR and CVaR testing, stress testing, quantile regression, the Fama-French
five-factor model, CAPM, and ARCH-GARCH models. The findings revealed that the
HRP portfolio not only exceeded expectations but also demonstrated superior resilience
and risk management, outperforming the other two portfolios across various market
conditions.
These results lead to a fascinating insight: Innovating portfolio strategies with an
emphasis on risk parity might present a new path for passive investors seeking better
outcomes
Descrição
Palavras-chave
Portfolio Analysis HRP 60/40 All-Weather Arch & Garch
Contexto Educativo
Citação
Nicola, Diego (2024). "Is the hierarchical risk parity (HRP) portfolio the optimal choice for passive investors? A comparative analysis of 60/40, HRP, and allweather portfolio”. Dissertação de Mestrado. Universidade de Lisboa. Instituto Superior de Economia e Gestão.
Editora
Instituto Superior de Economia e Gestão