Thematic Alpha Streams Improve Equity Portfolio Performance
We demonstrate one way to combine these alpha streams into portfolios that deliver strong risk-adjusted returns and lower turnover than most news-based portfolios.
In this research, we construct and use alpha streams employing RavenPack data; we demonstrate one way to combine these alpha streams into portfolios that deliver strong risk-adjusted returns and lower turnover than most news-based portfolios.
Not only were we able to extract strong performances from our separate regional and market capitalization-based portfolios, but we also found low correlations between these portfolios so we could harvest the benefits of diversification by combining them.
- A portfolio combining all sizes/regions delivered an information ratio of 6.0 vs the best separate IR (US small cap) of 4.35.
- A cross-regional small cap portfolio yielded an IR of 5.36 vs 4.35 for the US and 3.73 for Europe.
- A US portfolio combining all market caps gave an IR of 4.37 vs 4.35 for US small caps and 2.0 for large/mid-caps.
- A European portfolio of all sizes had an IR of 4.44 against 3.73 and 2.58 for EU small and mid/large caps respectively.
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