Comparing Mean-Variance Portfolios and Equal-Weight Portfolios for Major US Equity Indexes

14 Pages Posted: 12 Jun 2019 Last revised: 20 Feb 2020

See all articles by Haotian Cai

Haotian Cai

Kensho Technologies

Anatoly B. Schmidt

Finance and Risk Engineering, NYU Tandon School of Engineering

Date Written: February 3, 2020

Abstract

We compared performance of mean variance portfolios (MVPs) based on Pearson’s correlations (PeMVPs) and partial correlations (PaMVPs) with equal-weight portfolios (EWPs) for several tradable US equity index ETFs. We found that performance of MVPs and EWPs depends on two factors: the constituents of the underlying equity index and its holding period. When a market-wide index contained super-high growth technology stocks, such as FAANNG in the SPDR S&P 500 ETF, PeMVP being a concentrated growth portfolio unsurprisingly outperformed more diversified PaMVP and EWP. However, when FAANNG were dropped from the SPDR S&P 500 ETF, and even in the case of the SPDR S&P 500 Growth ETF (that does not have relatively low-performing value stocks), PaMVP outperformed PeMVP at one-month holding period. For other US equity index SPDR ETFs (S&P 500 Value, S&P MidCap 400, and S&P 600 SmallCap), PaMVP was always superior, and EWP could outperform PeMVP at shorter holding periods.

Keywords: mean variance portfolio, equal weight portfolio, partial correlations, out-of-sample performance

JEL Classification: G11

Suggested Citation

Cai, Haotian and Schmidt, Anatoly B., Comparing Mean-Variance Portfolios and Equal-Weight Portfolios for Major US Equity Indexes (February 3, 2020). Available at SSRN: https://ssrn.com/abstract=3395359 or http://dx.doi.org/10.2139/ssrn.3395359

Haotian Cai

Kensho Technologies ( email )

One World Trade Center
Suite 76G
New York, NY 10007
United States

Anatoly B. Schmidt (Contact Author)

Finance and Risk Engineering, NYU Tandon School of Engineering ( email )

NY
United States

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