How to Evaluate Multi-Asset Strategies

//, Academic Research Insight/How to Evaluate Multi-Asset Strategies

How to Evaluate Multi-Asset Strategies

By |2018-02-20T11:52:40+00:00February 20th, 2018|Basilico and Johnsen, Academic Research Insight|

Evaluating Multi-Asset Strategies

  • K. Stuart Peskin
  • Journal of Portfolio Management, special issue
  • A version of this paper can be found here
  • Want to read our summaries of academic finance papers? Check out our Academic Research Insight category.

What are the research questions?

Institutional Investors are increasingly allocating to multi-asset strategies (p.17 ) as they seek to access greater diversity, liquidity, and reduced volatility (survey results from Greenwich Associates, 2015).
The main research questions of the paper are as follows:
  1. Is there ‘ONE’ correct way to evaluate multi-asset strategies?
  2. Which are the most appropriate metrics to evaluate multi-asset strategies?

What are the Academic Insights?

By using a case-study approach, the author suggests the following:

  1. NO- There is no ‘ONE’ correct way to evaluate the performance of a multi-asset portfolio. A range of measures is preferred. And by the way, correlation can be a misleading metric, if viewed in isolation.
  2. The author proposes different metrics based on both historical and predictive techniques.


  1. Tail behavior to provide critical information of the strategy results during period of market turbulence ( including a comparison to what correlations would have predicted)
  2. Upside versus downside participation to observe the degree of market capture
  3. Attribution by asset class, for example, how much of the return was captured by equities


  1. Risk modeling, for instance by using an APT risk model (intro to these models here)
  2. Ex-ante tail behavior, the evaluation of portfolio under never-seen-before turbulence

Why does it matter?

This case study is a nice example of a complementary analysis to better understand multi-asset strategy and their potential role in a portfolio.

The Most Important Chart from the Paper:

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index.


An increasing number of investors are recognizing the many benefits of a multi-asset approach, including the potential for improved diversity, greater liquidity, and reduced volatility. Also advantageous is their ability to fit readily alongside a variety of investment approaches and asset class categories. That said, multi-asset strategies come with challenges. This article addresses a particularly problematic area—how to evaluate multi-asset strategy outcomes. Relying on only one or two measures for evaluation can lead to misinterpretation of the historical investment results achieved. Instead, the author advises using a variety of evaluation techniques. One of these—correlation—is discussed in depth, because the author believes it is misunderstood in many dimensions of multi-asset investing. The author also examines some of the more useful performance and risk analytics, both historical and predictive, that can help to understand what drives multi-asset investment outcomes.

  • The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. Our full disclosures are available here. Definitions of common statistics used in our analysis are available here (towards the bottom).
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Elisabetta Basilico, PhD, CFA
Dr. Elisabetta Basilico is a seasoned investment professional with an expertise in "turning academic insights into investment strategies." Research is her life's work and by combing her scientific grounding in quantitative investment management with a pragmatic approach to business challenges, she’s helped several institutional investors achieve stable returns from their global wealth portfolios. Her expertise spans from asset allocation to active quantitative investment strategies. Holder of the Charter Financial Analyst since 2007 and a PhD from the University of St. Gallen in Switzerland, she has experience in teaching and research at various international universities and co-author of articles published in peer-reviewed journals. She and co-author Tommi Johnsen are currently writing a book on research-backed investment ideas. You can find additional information at Academic Insights on Investing.
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