{"id":105,"date":"2024-08-19T10:35:00","date_gmt":"2024-08-19T08:35:00","guid":{"rendered":"https:\/\/blog.zhaw.ch\/aiinfinance\/?p=105"},"modified":"2024-09-23T14:43:21","modified_gmt":"2024-09-23T12:43:21","slug":"interpretable-machine-learning-for-diversified-portfolio-construction","status":"publish","type":"post","link":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/","title":{"rendered":"Interpretable machine learning for diversified portfolio construction"},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n
<\/div>\n\n\n\n

In this article, the authors construct a pipeline to benchmark hierarchical risk parity (HRP) relative to equal risk contribution (ERC) as examples of diversification strategies allocating to liquid multi-asset futures markets with dynamic leverage (volatility target). <\/p>\n\n\n\n

The authors use interpretable machine learning concepts (explainable AI) to compare the robustness of the strategies and to back out implicit rules for decision-making. The empirical dataset consists of 17 equity index, government bond, and commodity futures markets across 20 years. The two strategies are back tested for the empirical dataset and for about 100,000 bootstrapped datasets. XGBoost is used to regress the Calmar ratio spread between the two strategies against features of the bootstrapped datasets. Compared to ERC, HRP shows higher Calmar ratios and better matches the volatility target. Using Shapley values, the Calmar ratio spread can be attributed especially to univariate drawdown measures of the asset classes.<\/p>\n\n\n\n

Jaeger, Markus; Kr\u00fcgel, Stephan; Marinelli, Dimitri; Papenbrock, Jochen; Schwendner, Peter, 2021. The Journal of Financial Data Science 3(3), pp. 31-51.<\/pre>\n\n\n\n
\n
https:\/\/doi.org\/10.3905\/jfds.2021.1.066<\/a><\/div>\n<\/div>\n\n\n\n
<\/div>\n","protected":false},"excerpt":{"rendered":"
In this article, the authors construct a pipeline to benchmark hierarchical risk parity (HRP) relative to equal risk contribution (ERC) as examples of diversification strategies allocating to liquid multi-asset futures markets with dynamic leverage (volatility target). The authors use interpretable machine learning concepts (explainable AI) to compare the robustness of the strategies and to back […]<\/p>\n","protected":false},"author":669,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[6],"tags":[],"features":[],"class_list":["post-105","post","type-post","status-publish","format-standard","hentry","category-papers"],"yoast_head":"\nInterpretable machine learning for diversified portfolio construction - Artificial Intelligence in Finance<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/\" \/>\n<meta property=\"og:locale\" content=\"de_DE\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Interpretable machine learning for diversified portfolio construction\" \/>\n<meta property=\"og:description\" content=\"In this article, the authors construct a pipeline to benchmark hierarchical risk parity (HRP) relative to equal risk contribution (ERC) as examples of diversification strategies allocating to liquid multi-asset futures markets with dynamic leverage (volatility target). The authors use interpretable machine learning concepts (explainable AI) to compare the robustness of the strategies and to back […]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/\" \/>\n<meta property=\"og:site_name\" content=\"Artificial Intelligence in Finance\" \/>\n<meta property=\"article:published_time\" content=\"2024-08-19T08:35:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2024-09-23T12:43:21+00:00\" \/>\n<meta property=\"og:image\" content=\"http:\/\/blog.zhaw.ch\/aiinfinance\/files\/2024\/04\/Portfolio-Construction-1024x387.jpg\" \/>\n<meta name=\"author\" content=\"rikl\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Verfasst von\" \/>\n\t<meta name=\"twitter:data1\" content=\"rikl\" \/>\n\t<meta name=\"twitter:label2\" content=\"Gesch\u00e4tzte Lesezeit\" \/>\n\t<meta name=\"twitter:data2\" content=\"2\u00a0Minuten\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/\"},\"author\":{\"name\":\"rikl\",\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/#\/schema\/person\/449cc73554a9ce1ce663d5e7224de6cc\"},\"headline\":\"Interpretable machine learning for diversified portfolio construction\",\"datePublished\":\"2024-08-19T08:35:00+00:00\",\"dateModified\":\"2024-09-23T12:43:21+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/\"},\"wordCount\":153,\"commentCount\":0,\"image\":{\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#primaryimage\"},\"thumbnailUrl\":\"http:\/\/blog.zhaw.ch\/aiinfinance\/files\/2024\/04\/Portfolio-Construction-1024x387.jpg\",\"articleSection\":[\"Papers\"],\"inLanguage\":\"de\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/\",\"url\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/\",\"name\":\"Interpretable machine learning for diversified portfolio construction - Artificial Intelligence in Finance\",\"isPartOf\":{\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#primaryimage\"},\"thumbnailUrl\":\"http:\/\/blog.zhaw.ch\/aiinfinance\/files\/2024\/04\/Portfolio-Construction-1024x387.jpg\",\"datePublished\":\"2024-08-19T08:35:00+00:00\",\"dateModified\":\"2024-09-23T12:43:21+00:00\",\"author\":{\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/#\/schema\/person\/449cc73554a9ce1ce663d5e7224de6cc\"},\"breadcrumb\":{\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#breadcrumb\"},\"inLanguage\":\"de\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"de\",\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#primaryimage\",\"url\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/files\/2024\/04\/Portfolio-Construction-scaled.jpg\",\"contentUrl\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/files\/2024\/04\/Portfolio-Construction-scaled.jpg\",\"width\":2560,\"height\":968},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Startseite\",\"item\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Interpretable machine learning for diversified portfolio construction\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/#website\",\"url\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/\",\"name\":\"Artificial Intelligence in Finance\",\"description\":\"Ein Blog der ZHAW Z\u00fcrcher Hochschule f\u00fcr Angewandte Wissenschaften\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"de\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/#\/schema\/person\/449cc73554a9ce1ce663d5e7224de6cc\",\"name\":\"rikl\",\"url\":\"https:\/\/blog.zhaw.ch\/aiinfinance\/author\/rikl\/\"}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Interpretable machine learning for diversified portfolio construction - Artificial Intelligence in Finance","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/","og_locale":"de_DE","og_type":"article","og_title":"Interpretable machine learning for diversified portfolio construction","og_description":"In this article, the authors construct a pipeline to benchmark hierarchical risk parity (HRP) relative to equal risk contribution (ERC) as examples of diversification strategies allocating to liquid multi-asset futures markets with dynamic leverage (volatility target). The authors use interpretable machine learning concepts (explainable AI) to compare the robustness of the strategies and to back […]","og_url":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/","og_site_name":"Artificial Intelligence in Finance","article_published_time":"2024-08-19T08:35:00+00:00","article_modified_time":"2024-09-23T12:43:21+00:00","og_image":[{"url":"http:\/\/blog.zhaw.ch\/aiinfinance\/files\/2024\/04\/Portfolio-Construction-1024x387.jpg","type":"","width":"","height":""}],"author":"rikl","twitter_card":"summary_large_image","twitter_misc":{"Verfasst von":"rikl","Gesch\u00e4tzte Lesezeit":"2\u00a0Minuten"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#article","isPartOf":{"@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/"},"author":{"name":"rikl","@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/#\/schema\/person\/449cc73554a9ce1ce663d5e7224de6cc"},"headline":"Interpretable machine learning for diversified portfolio construction","datePublished":"2024-08-19T08:35:00+00:00","dateModified":"2024-09-23T12:43:21+00:00","mainEntityOfPage":{"@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/"},"wordCount":153,"commentCount":0,"image":{"@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#primaryimage"},"thumbnailUrl":"http:\/\/blog.zhaw.ch\/aiinfinance\/files\/2024\/04\/Portfolio-Construction-1024x387.jpg","articleSection":["Papers"],"inLanguage":"de","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#respond"]}]},{"@type":"WebPage","@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/","url":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/","name":"Interpretable machine learning for diversified portfolio construction - Artificial Intelligence in Finance","isPartOf":{"@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/#website"},"primaryImageOfPage":{"@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#primaryimage"},"image":{"@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#primaryimage"},"thumbnailUrl":"http:\/\/blog.zhaw.ch\/aiinfinance\/files\/2024\/04\/Portfolio-Construction-1024x387.jpg","datePublished":"2024-08-19T08:35:00+00:00","dateModified":"2024-09-23T12:43:21+00:00","author":{"@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/#\/schema\/person\/449cc73554a9ce1ce663d5e7224de6cc"},"breadcrumb":{"@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#breadcrumb"},"inLanguage":"de","potentialAction":[{"@type":"ReadAction","target":["https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/"]}]},{"@type":"ImageObject","inLanguage":"de","@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#primaryimage","url":"https:\/\/blog.zhaw.ch\/aiinfinance\/files\/2024\/04\/Portfolio-Construction-scaled.jpg","contentUrl":"https:\/\/blog.zhaw.ch\/aiinfinance\/files\/2024\/04\/Portfolio-Construction-scaled.jpg","width":2560,"height":968},{"@type":"BreadcrumbList","@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/2024\/08\/19\/interpretable-machine-learning-for-diversified-portfolio-construction\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Startseite","item":"https:\/\/blog.zhaw.ch\/aiinfinance\/"},{"@type":"ListItem","position":2,"name":"Interpretable machine learning for diversified portfolio construction"}]},{"@type":"WebSite","@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/#website","url":"https:\/\/blog.zhaw.ch\/aiinfinance\/","name":"Artificial Intelligence in Finance","description":"Ein Blog der ZHAW Z\u00fcrcher Hochschule f\u00fcr Angewandte Wissenschaften","potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/blog.zhaw.ch\/aiinfinance\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"de"},{"@type":"Person","@id":"https:\/\/blog.zhaw.ch\/aiinfinance\/#\/schema\/person\/449cc73554a9ce1ce663d5e7224de6cc","name":"rikl","url":"https:\/\/blog.zhaw.ch\/aiinfinance\/author\/rikl\/"}]}},"_links":{"self":[{"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/posts\/105","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/users\/669"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/comments?post=105"}],"version-history":[{"count":15,"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/posts\/105\/revisions"}],"predecessor-version":[{"id":283,"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/posts\/105\/revisions\/283"}],"wp:attachment":[{"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/media?parent=105"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/categories?post=105"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/tags?post=105"},{"taxonomy":"features","embeddable":true,"href":"https:\/\/blog.zhaw.ch\/aiinfinance\/wp-json\/wp\/v2\/features?post=105"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}