This paper extends the extreme downside correlation (EDC) and extreme downside hedge (EDH) methodology to model the interdependence in the sensitivity of assets to the downside risk of other financial assets under severe firm-level and market conditions. The model is applied to analyze both...

In this paper, the authors construct a pipeline to benchmark Hierarchical Risk Parity (HRP) relative to Equal Risk Contribution (ERC) as examples of diversification strategies allocating to liquid multi-asset futures markets with dynamic leverage ("volatility target"). The authors use...

In this paper, we construct a pipeline to investigate heuristic diversification strategies in asset allocation. We use machine learning concepts ("explainable AI") to compare the robustness of different strategies and back out implicit rules for decision making.In a first step, we augment the...

Portfolio allocation strategies often seek risk budgeting and diversification by relying only on correlation matrices to model relationships between assets. Although this approach can capture, in normal times, most of the dependencies between asset prices, it faces several challenges in terms of...