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News & Research
Most Recent News & Research
Analytics | Portfolio Construction
Adding Alpha by Subtracting Beta: A Case Study on How Quantitative Tools Can Improve a Portfolio’s Returns
During turbulent risk environments, it is imperative that fundamental portfolio managers learn to understand factor exposures to know what is driving their portfolios’ returns.
This paper documents collaborative research between State Street and Qontigo on a framework for quantifying macroeconomic risk using a fundamental equity risk model.
Analytics | Portfolio Construction
High-Yield Bonds: Analyzing the Risk and Return Tradeoff When Rates are Negative
In a world where some investors pay the government for the privilege of lending it money—and where even fixed income securities with the lowest investment-grade credit ratings yield barely more than 1% per annum—the “hunt for yield” becomes ever more challenging.
The ability to attribute portfolio risk and performance to key factors, such as overall market exposure, rates, sectors, and quality, is an essential tool for helping portfolio managers to understand their risk and interpret their results. A parsimonious factor risk model can also support advanced portfolio construction goals, such as minimizing benchmark tracking error or realizing factor exposure tilts.
Analytics | Portfolio Risk Management
Qontigo InsightTM Quarterly Risk Highlights Q4 2019: Markets celebrating! But Factor Investors? Not So Much…
2019 was a remarkable year, with benchmarks around the world climbing to new records, while volatility plunged. Both emerging and developed markets shared in the overperformance, with all components of risk falling for both markets. However, style factors saw mixed results, with few reporting outsized returns for the quarter or year.
The trade war between China and the US has been the single most important driver of financial market performance in the past three years, and despite the recent optimism that a “phase one” deal is within reach, there is still a distinct possibility for it to fall apart at the last minute.
Modeling potential losses of a credit-risky bond portfolio based on granular, issuer-level return data is notoriously difficult. A myriad of data-quality concerns arise, driven by a vast, frequently illiquid market for which evaluated pricing is often stale, inconsistent or simply missing.
Analytics | Factor Investing
Shortchanged by the No-Short Constraint — and Other Observations on 2019 Factor Performance
Many quant managers are having a tough go of it this year. While one might blame factors in general, their returns do not tell the whole story (or even the bulk of the story).
The quadratic utility function balances two conflicting objectives: more return and less risk. It is a way to pick one portfolio on the efficient frontier. Investors initially assumed that the active risk aversion parameter was the same as the total risk aversion parameter, but we show that they are different and ask the question – is this still relevant today?
Analytics | Portfolio Risk Management
Qontigo InsightTM Quarterly Risk Highlights Q3 2019: Market risk changed little… But a lot happened under the hood
Markets around the globe wavered over the past three months, but the decade-long global bull market endured in the third quarter. Despite the market’s gyrations, risk was little changed, with most major indices seeing only a relatively small rise in risk from the end of the second quarter to the end of the third quarter. Nonetheless, a lot has happened beneath the surface.
Risk model providers often commonly report the average R2 value of the asset returns model. Some models, such as statistical models, will consistently have greater R2 values than others. However, strong explanatory power from a returns model does not necessarily translate into an accurate risk model.
Analytics | Portfolio Risk Management
Qontigo InsightTM Quarterly Risk Highlights Q2 2019: A Strong Market … but on Thinning Ice?
While equity markets were strong overall in Q2 – and risk levels did not stand out – some trends were troubling and investors should be cognizant of them.