Portfolios - EDHEC-Risk

Tracking Error Across Market Conditions
• A combination of both approaches is expected to lead to a
smoother conditional performance, and a lower relative risk with
respect to the cap-weighted index.
Minimum Volatility
Maximum Sharpe Ratio
Diversified (50% Minimum
Volatility + 50% Maximum
Sharpe Ratio)
Conditioning Variable Regime Tracking Error with S&P 500 index
Annualised Equity Market Excess
Returns (Market –risk free rate)
Low 3.28% 3.30% 3.23%
2 2.12% 2.17% 2.10%
3 1.81% 1.82% 1.77%
4 2.21% 21% 2.18% 2.14%
High 2.37% 2.54% 2.41%
Conditioning Variable Regime Tracking Error with S&P 500 index
Annualised Market Volatility (of
Excess Market Return)
Low 1.55% 1.72% 1.59%
2 1.78% 1.78% 1.73%
3 1.99% 2.08% 1.99%
4 2.45% 2.50% 2.42%
High 3.97% 3.89% 3.87%
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