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Overcoming Markowitz’s Instability with the help of the Hierarchical Risk Parity (HRP): Theoretical Evidence

35.00 mins
Dr. Alexandre Antonov
Thu 23 Mar 2023

In this talk we compare two methods of portfolio allocation, the classical Markowitz one and the hierarchical risk parity (HRP) based on a clustered optimization. We drive theoretical values of a noise of allocation weights coming from the variance estimation. We demonstrate that the HRP is indeed less noisy (and thus more robust) w.r.t. the classical Markowitz.

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