Schur Complementary Allocation: A Unification of Hierarchical Risk Parity and Minimum Variance Portfolios
Portfolio Management
2024-11-12 v1 Mathematical Finance
Abstract
Despite many attempts to make optimization-based portfolio construction in the spirit of Markowitz robust and approachable, it is far from universally adopted. Meanwhile, the collection of more heuristic divide-and-conquer approaches was revitalized by Lopez de Prado where Hierarchical Risk Parity (HRP) was introduced. This paper reveals the hidden connection between these seemingly disparate approaches.
Keywords
Cite
@article{arxiv.2411.05807,
title = {Schur Complementary Allocation: A Unification of Hierarchical Risk Parity and Minimum Variance Portfolios},
author = {Peter Cotton},
journal= {arXiv preprint arXiv:2411.05807},
year = {2024}
}