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Stabilize your Investments - Dynamic Overlay Technology from OpenMetrics

posted Jan 12, 2019, 3:40 AM by Felix Fernandez

Dynamic Overlay Technology from OpenMetrics


Basically, all investment managers seek to actively protect their investments against unwanted drawdowns.

As static* diversification between asset classes does not protect well during severe market crises due to increasing correlation, therefore it is important to manage drawdowns already on asset class levels.

Typical approaches (e.g. volatility based) are too slow to provide meaningful protection. In addition, buying insurance during phases of high volatility is typically expensive.

In this paper we propose an innovative approach to control drawdowns in a dynamic fashion via a dynamic overlay technology.

The proposed approach is based upon advanced statistical concepts - Bayesian Change Point (BCP) analysis - and allows for a timely and efficient risk management. The theoretical foundation for this approach is public and can found at the ETH Zurich library**.



Conclusion

- Dynamic overlay strategies based on advanced statistical concepts can help to protect investment portfolios on asset class level.

- The application is straightforward and can be integrated in the regular investment management process.

- Stability signals can be obtained by the OpenMetrics® Risk.Monitor report. It incorporates a rich set of risk analytics for professional risk/investment managers and is available on a monthly, weekly or bi-weekly subscription.

- Try it 3 months for free, just send an email to contact@openmetrics.ch.


* Static diversification stands for maintaining a predefined ratio between different asset classes.

** https://doi.org/10.3929/ethz-b-000244960

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Felix Fernandez,
Jan 12, 2019, 3:40 AM
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