Hedge Risk with Two Asset Allocation Strategies: Constant Weight Investment Strategy and Modern Portfolio Theory

Weijun Zhou ()
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Weijun Zhou: The Affiliated High School of SCNU, International Department

A chapter in Proceedings of the International Workshop on Navigating the Digital Business Frontier for Sustainable Financial Innovation (ICDEBA 2024), 2025, pp 444-451 from Springer

Abstract: Abstract The financial market is recognized as a high-risk environment with numerous opportunities. Recently, stock market volatility has increased, particularly in the aftermath of the pandemic, leading to lower returns and limited macroeconomic growth, which have posed significant challenges for the financial sector. In such uncertain times, effective risk management strategies are essential for successful investment. Two key methods to mitigate risk are hedge funding and asset allocation strategies, which can protect investors from significant exposure to market fluctuations. By applying modern portfolio theory (MPT) and constant-weight investment strategies, risk-averse investors can construct diversified portfolios that optimize returns while minimizing exposure to unmanageable risk. This article illustrates these strategies with real-life examples from companies like JP Morgan and GE, demonstrating how these methods can be effectively implemented. The research aims to familiarize investors with risk hedging strategies and provide a comprehensive, step-by-step guide to building an optimal investment portfolio. Investors looking to successfully manage risk while navigating the complexity of today’s financial markets will find this contribution to be very helpful.

Keywords: Portfolio theory; investment strategy; risk and return; diversification; hedge fund (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-652-9_47

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DOI: 10.2991/978-94-6463-652-9_47

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