All-Weather, empirical analysis of static and dynamic portfolio allocation

Abstract

The aim of this thesis is to test the reliability of the All-Weather portfolio allocation. In particular, starting from the works carried out by Bridgewater Associate and Gabriele Galletta we build a portfolio based on the Risk-Parity and Post Modern Portfolio Theory. The portfolio allocation is based on four macro-economic scenarios, respectively: inflation, deflation, growth and recession. Each of this scenario can be mixed with another one creating a sub-scenario. The All-Weather behaved well, outperforming the traditional portfolios in every macro scenario. The paper stressed out the Risk-Parity allocation involving a Dynamic-Allocation by automatically allocating the capital only into the securities which traditionally performed well in each sub-scenario. This asset allocation scored very high in traditional performance index like the Sharpe Ratio and others.