Make the Best from Comparing Conventional and Islamic Asset Classes: A Design of an All-Seasons Combined Portfolio

This paper aims to contribute to the existing literature in portfolio management and strategy by investigating the performance, diversification, and hedging benefits arising from integrating Sharia-compliant stocks into a conventional portfolio. Thus, this paper tests the performance of a Combined Portfolio, resulting from the combination of conventional Islamic instruments, covering different macroeconomic scenarios in the last decade (2010–2020). The strategic asset allocation was designed following the Global Macro Anima (GMA) strategy, solving a risk-parity optimisation problem using a specifically developed MATLAB™ algorithm. The findings will contribute to answering the question related to the possibility of including alternative instruments to increase diversification with hedging benefits by building asset allocations that perform well across different macroeconomic scenarios.

Public-private partnership as a mechanism for effective management of state property

This article examines the global experience of using public-private partnerships and its impact (positive and negative) on economic growth. Factors influencing sustainable technological progress and state policy on opportunities and economic benefits of Ukraine due to the expansion of public-private partnership in the context of globalization are identified. A methodical set of tools is used, which allows public administration representatives not only to realistically assess the resource potential of state property, but also to be able to effectively manage it in conditions of rapid technology development, limited funding and impossibility and / or inexpediency of state property. The study proves that public-private partnership in Ukraine has not gained much popularity, although changes in all areas of activity encourage a new perception and attitude to public-private partnership through: attractiveness of investments in public sector development for foreign companies and sole proprietors; competitiveness, transparency and the ability to have the best partners among private partners; risk parity that can be placed on the partner, which can reduce it more effectively; profitability, preferences and reduction of the tax burden on business; high quality and prompt project development, thanks to the experience of a private partner in a particular field; the ability of the public partner to control the development and implementation of the project; support for new business ideas, innovative approach and maximizing the experience of private partners.

Optimal Portfolio Diversification via Independent Component Analysis

A natural approach to enhance portfolio diversification is to rely on factor-risk parity, which yields the portfolio whose risk is equally spread among a set of uncorrelated factors. The standard choice is to take the variance as risk measure, and the principal components (PCs) of asset returns as factors. Although PCs are unique and useful for dimension reduction, they are an arbitrary choice: any rotation of the PCs results in uncorrelated factors. This is problematic because we demonstrate that any portfolio is a factor-variance-parity portfolio for some rotation of the PCs. More importantly, choosing the PCs does not account for the higher moments of asset returns. To overcome these issues, we propose using the independent components (ICs) as factors, which are the rotation of the PCs that are maximally independent, and care about higher moments of asset returns. We demonstrate that using the IC-variance-parity portfolio helps to reduce the return kurtosis. We also show how to exploit the near independence of the ICs to parsimoniously estimate the factor-risk-parity portfolio based on value at risk. Finally, we empirically demonstrate that portfolios based on ICs outperform those based on PCs, and several state-of-the-art benchmarks.

Bitcoin and Portfolio Diversification: A Portfolio Optimization Approach

This study investigates the performance of Bitcoin as a diversifier under different constraining portfolio optimization frameworks. The study employs different constraining optimization frameworks that seek to maximize risk-adjusted returns (Sharpe ratio) of the portfolio by optimizing allocations to each asset class (asset allocation). The performance attributes are evaluated by comparing the portfolios both with and without Bitcoin under frameworks ranging from equal-weighted, risk-parity, and semi-constrained to unconstrained. This study suggests that Bitcoin, due to its exotic nature, unwavering appeal, and unknown set of drivers, could act as a diversifier in normal market conditions, and it might also have some borderline hedge to safe haven properties. The results further suggest that while Bitcoin may be a potential diversifier for a risk-seeking investor, the risk-averse investor must exercise caution by limiting their exposure to Bitcoin in their portfolios, as unnecessary exposure may increase the probability of losses in extreme market conditions.

Word Portfolio Optimization in the Environment of Zero Interest Rate

This paper provides a deep analysis of ten globally diversified portfolios, composed of different financial instruments: bonds, shares, ETF’s, commodities, indexes, currencies, constructed applying various optimization techniques. Statistical moments, such as mean, standard deviation, kurtosis and skewness of portfolios are compared and discussed. Moreover, performance of the portfolios within the time horizon of one year estimating Sharpe ratio, Treynor ratio, Sortino ratio is presented. Furthermore, a risk analysis of created portfolios is evaluated in terms of historical VaR and CVaR applying confidence interval 95%. The main results of this paper reveal that the portfolio, which is optimized to minimize VaR produces high expected shortfall. Secondly, the Risk Parity portfolio, despite reducing volatility, has delivered the highest kurtosis of the return, which may indicate the possible tail loss. Furthermore, the maximum Sharpe ratio portfolio has delivered extremely high kurtosis in comparison with the kurtosis of the other portfolios. Finally, it is observed that for the Naïve diversification portfolio it has been typical to have the highest downside deviation.