Diversification Strategies for Equity-Dominant Portfolios

Over the last five years markets have faced crises affecting portfolios in a way not predicted by financial models: Correlations across risky assets converged to one. In this paper, we explore a promising new approach to diversification: using "Realized equity volatility," or "REV". Our research indicates that it is possible to cost-effectively generate return streams that are highly correlated with REV using liquid, tradable instruments.

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