A Wholistic Approach to Diversification Management: The Diversification Delta Strategy Applied to Non-Normal Return Distributions

Abstract

Abstract/Zusammenfassung In this paper we study a higher moment diversification measure, the so-called diversification delta (Vermorken et al. (2012)), in a dynamic portfolio optimization context. Particularly, we set up an investment strategy that dynamically maximizes the diversification delta for a given set of assets. Thus, we label the resulting optimized portfolio structure as Maximum Diversification Delta Portfolio (MDDP). Our out-of-sample empirical study reveals that considering crisis-periods, the MDDP is superior to popular investment strategies, such as Minimum-Variance-Portfolio, Risk-Parity-Portfolio and Equally-Weighted-Portfolio, in terms of risk adjusted returns, risk moments and certainty equivalents. However, in line with other diversification measures the MDDP is no longer superior in upward trending markets. Ein ganzheitlicher Ansatz fur das Diversifikationsmanagement: Die Diversifikationsdelta-Strategie angewandt auf nicht-normale Renditeverteilungen In der vorliegenden Studie unters...