The Trend is Our Friend: Risk Parity, Momentum and Trend Following in Global Asset Allocation

ArXiv ID: ssrn-2265693 “View on arXiv”

Authors: Unknown

Abstract

We examine the effectiveness of applying a trend following methodology to global asset allocation between equities, bonds, commodities and real estate. The appl

Keywords: Trend Following, Global Asset Allocation, Multi-Asset Strategies, Time-Series Momentum, Portfolio Optimization, Multi-Asset

Complexity vs Empirical Score

• Math Complexity: 5.0/10
• Empirical Rigor: 8.5/10
• Quadrant: Holy Grail
• Why: The paper applies advanced statistical and financial mathematics (e.g., risk parity, momentum models, volatility adjustments) but is heavily grounded in empirical backtesting across multiple asset classes with clear performance metrics, making it both mathematically sophisticated and data/implementation-focused.

  flowchart TD
    A["Research Goal: Test trend following in multi-asset allocation<br/>(Equities, Bonds, Commodities, Real Estate)"] --> B["Data & Inputs"]
    B --> B1["Historical Price Data"]
    B --> B2["4 Asset Classes"]
    B --> B3["Risk Parity & Trend Following Models"]
    
    A --> C["Methodology & Computation"]
    C --> C1["Estimate Covariance Matrix"]
    C --> C2["Apply Portfolio Optimization<br/>(Risk Parity / MV)"]
    C --> C3["Compute Time-Series Momentum<br/>(Rolling Returns & Signals)"]
    
    C --> D["Key Outcomes"]
    D --> D1["Robust Diversification Benefits"]
    D --> D2["Improved Risk-Adjusted Returns"]
    D --> D3["Effective Hedge Against Market Shocks"]
    D --> D4["Trend & Risk Parity Synergy"]
    
    B1 --> C
    B2 --> C
    B3 --> C
    C1 --> D
    C2 --> D
    C3 --> D