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Equal Risk Contribution S&P Sector Portfolio (ERC)
Rohith E
posted
Portfolio Optimization Risk Management

Created portfolio with equal risk contribution from 9 sectors in S&P 500. Started at Equal weight algo posted by Jess Stauth -> Min Var algo posted by Grant Kiehne -> Paper by Benjamin Bruder and Theirry Roncalli.

The algo weights the S&P 500 sectors such that the risk contribution from each sector to the portfolio is roughly equal. End result is a portfolio that is fully invested in S&P 500 sectors, but has a lower beta. Over time, it also realized higher returns with this lower beta.

Please let me know if you catch any errors in the code. @Grant, thanks for sharing your code.All errors are my own.

Would be interesting to see if this phenomenon is more widely observed.

1 response
Grant Kiehne

@ Rohith, Glad you found some of the hack code I posted useful! You may want to read about how to schedule a function, since it'll tidy up your code. Also, I'd recommend having a look at your leverage, just to make sure it is approximately 1 for every trading minute. The slippage model may be affecting your results at $1M, as well. You may want to look into this.

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