Newfound Research examines how combining multiple risk management strategies can improve portfolio durability across volatile markets. The paper argues diversification works best across approaches, not just assets, highlighting how several defensive strategies outperformed the S&P 500 during drawdowns between 2006 and 2016.
2016 Market Outlook
Newfound Research
Research
23 Pages
Key Takeaways
Diversified Risk Blending: Equal weighted diversification across five strategies produced roughly 8% annualized returns with materially smaller drawdowns than the S&P 500 from 2006 through 2016.
Risk Parity Strength: Risk parity gained 57.9% relative to the S&P 500 in 2008, showing how alternative risk management approaches can behave very differently during stressed markets.
Drawdown Reduction Benefits: The diversified portfolio experienced materially steadier downside behavior, avoiding the S&P 500’s nearly 37% maximum drawdown during the 2008 financial crisis period.
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