Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 10, 2015 erstellt
Description:
We measure the contributions to risk of a set of factors, strategies, or investments, based on "Minimum-Torsion Bets", namely a set of uncorrelated factors, optimized to closely track the factors used to allocate the portfolio. We then introduce a novel definition of contributions to risk, which generalizes the "marginal contributions to risk", traditionally used in banks for risk budgeting and in asset management to build risk parity strategies.The Minimum-Torsion Bets allow us to also introduce a natural diversification score, the Effective Number of Minimum-Torsion Bets, which we use to measure and manage diversification.We discuss the advantages of the Minimum-Torsion Bets over the traditional approach to diversification based on marginal contributions to risk. We present two case studies, a security-based investment in the stocks of the S&P 500, and a factor-based investment in the five Fama-French factors