Distance between Two Funds
In our first project, we studied all major traditional asset classes, such as the style box funds, the sector funds, bond funds, and REIT funds. We have defined a new concept in asset management – Distance. The distance concept is a quantitative representation of diversification. Before us, the diversification is just a qualitative concept. Now we can give a number for the level of diversification when two funds are considered in a portfolio. At a later stage, we will try to determine the multi-dimensional distance concepts for a portfolio with more than two funds.
When the large cap fund is the center, the five funds with longest distance are Precious Metals funds, Technology funds, REIT funds, Bond Funds, and Energy Funds.
When the small cap fund is the center, the five funds with largest distance are Technology funds, Precious Metals funds, Utilities Funds, Energy funds, REIT funds.
When the energy fund is the center, the five funds with biggest distance are Technology funds, Precious funds, Small Cap Growth funds, REIT funds, and Consumer funds.
When the utilities fund is the center, the five funds with the best distance are Precious Metals funds, Technology funds, REIT funds, Consumer funds, and Energy funds.
When the bond fund is the center, the five funds with the farthest distance are Precious Metals funds, Small Cap Growth funds, Mid Cap Growth funds, Consumer funds, and Industrial funds.
When the REIT fund is the center, the five funds with the best diversification are Technology funds, Precious Metals funds, Large Cap Growth funds, Small/Mid Cap Growth funds, and Utilities Funds.
Now we have concluded the one-dimensional study for the general styles and sectors funds. We are satisfied with the current results. Now we are prepared to study one family of funds. Now the Vanguard family is the largest one in the United States. So we are ready to study the Vanguard funds.
In the first round of study, we have selected 52 Vanguard funds with at least 10 years of records. We are looking for the best pairs of funds within this family of funds.
When the large cap fund is the center, the five funds with longest distance are Precious Metals funds, Technology funds, REIT funds, Bond Funds, and Energy Funds.
When the small cap fund is the center, the five funds with largest distance are Technology funds, Precious Metals funds, Utilities Funds, Energy funds, REIT funds.
When the energy fund is the center, the five funds with biggest distance are Technology funds, Precious funds, Small Cap Growth funds, REIT funds, and Consumer funds.
When the utilities fund is the center, the five funds with the best distance are Precious Metals funds, Technology funds, REIT funds, Consumer funds, and Energy funds.
When the bond fund is the center, the five funds with the farthest distance are Precious Metals funds, Small Cap Growth funds, Mid Cap Growth funds, Consumer funds, and Industrial funds.
When the REIT fund is the center, the five funds with the best diversification are Technology funds, Precious Metals funds, Large Cap Growth funds, Small/Mid Cap Growth funds, and Utilities Funds.
Now we have concluded the one-dimensional study for the general styles and sectors funds. We are satisfied with the current results. Now we are prepared to study one family of funds. Now the Vanguard family is the largest one in the United States. So we are ready to study the Vanguard funds.
In the first round of study, we have selected 52 Vanguard funds with at least 10 years of records. We are looking for the best pairs of funds within this family of funds.
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