Schur Complementary Allocation: A Unification of Hierarchical Risk Parity and Minimum Variance Portfolios

Peter Cotton

Papers from arXiv.org

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.

Date: 2024-10
New Economics Papers: this item is included in nep-mac and nep-rmg
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