# Minimum Risk Portfolios

**Minimum Risk Portfolios**

**What is the objective of these portfolios?**

These portfolios aim to minimize risk while optimizing returns, focusing on managing various risk metrics such as volatility, drawdown, or conditional value at risk (CvaR). By reducing the potential for significant losses, they provide investors with a more stable investment experience in uncertain market conditions.

**What qualifies as a Minimum Risk Portfolios?**

These portfolios qualify as "Minimum Risk" because they prioritize reducing downside risks using specialized algorithms that minimize exposure to market downturns. They employ asset allocation models designed to limit volatility or other risk factors while balancing returns. Their dynamic structure ensures that the portfolio adjusts to market conditions to maintain lower risk levels.

**Why is this family of portfolios rebalanced and tracked each month?**

The Minimum Risk Portfolios family was created to offer risk-conscious investors a structured approach to reduce exposure to significant market fluctuations. Tracking these portfolios enables investors to gauge how effectively they are mitigating risks while still capturing growth potential, making them ideal for conservative or risk-averse investors.

**What portfolio recipes are included in the Minimum Risk Portfolios family?**

RecipeInvesting tracks the following Portfolio Recipes in the category of

**Minimum Risk Portfolios**:

- Minimum Downside Deviation Portfolio (t.risd): chooses an allocation from a set of 8 asset class ETFs to minimize the downside deviation of the portfolio.
- Minimum CdaR Portfolio (t.cdar): chooses an allocation from a set of 8 asset class ETFs based on the combination that will minimize the portfolio's Conditional Drawdown at Risk (CdaR).
- Minimum CvaR Portfolio (t.cvar): chooses an allocation from a set of 8 asset class ETFs based on the combination that will minimize the portfolio's expected shortfall as defined by Conditional Value at Risk (CVaR).
- Minimum Downside MAD Portfolio (t.madd): chooses an allocation from a set of 8 asset class ETFs to minimize the downside Mean Absolute Deviation (MAD) of the portfolio.
- Minimum Drawdown Portfolio (t.loss): chooses an allocation from a set of 8 asset class ETFs to minimize the maximum drawdown of the portfolio.
- Minimum Mean Abs Deviation Portfolio (t.madm): chooses an allocation from a set of 8 asset class ETFs to minimize the Mean Absolute Deviation (MAD) of the portfolio.
- Minimum Variance A Portfolio (t.mvar): creates a covariance matrix that includes the covariance of each possible pair of assets from a set of 8 asset class ETFs, then solves to find the combination of asset weights (i.e., percentage allocations) that gives the portfolio the lowest overall covariance.
- Minimum Variance B Portfolio (t.mva2): creates a covariance matrix that includes the covariance of each possible pair of assets from a set of 8 asset class ETFs, then solves to find the combination of asset weights (i.e., the percentage allocation to each asset) that gives the portfolio the lowest overall covariance.
- Minimum Variance C Portfolio (t.mva3): creates a covariance matrix that includes the covariance of each possible pair of assets from a set of 8 asset class ETFs, then solves to find the combination of asset weights (i.e., the percentage allocation to each asset) that gives the portfolio the lowest overall covariance.

**What do Minimum Risk Portfolios have in common?**

All of the Portfolio Recipes in the Minimum Risk Portfolios Family share the following characteristics:

- Tactical / Dynamic portfolio approach
- Monthly rebalance frequency
- Possible asset class ETFs which can be used as portfolio ingredients: U.S. Large Cap Equity, U.S. Small Cap Equity, NASDAQ 100 Equity, U.S. Real Estate, U.S. Long Term Treasury Bonds, Emerging Markets Equity, International Developed Markets Equity, and Gold

**How do Minimum Risk Portfolios differ?**

Despite their similarities, Portfolio Recipes in the Minimum Risk Portfolios Family can differ based on these attributes:

- Risk metric used for risk minimization
- Lookback period
- Algorithm used for calculating the upcoming month's portfolio allocation

**Comparison of Minimum Risk Portfolios**

Recipe Name | Min Downside Deviation | Min CdaR | Min CvaR | Min Downside MAD | Min Drawdown | Min Mean Abs Deviation | Min Variable A | Min Variable B | Min Variable C |

Recipe ID | t.risd | t.cdar | t.cvar | t.madd | t.loss | t.madm | t.mvar | t.mva2 | t.mva3 |

Portfolio Approach | Tactical / Dynamic | Tactical / Dynamic | Tactical / Dynamic | Tactical / Dynamic | Tactical / Dynamic | Tactical / Dynamic | Tactical / Dynamic | Tactical / Dynamic | Tactical / Dynamic |

Rebalance Frequency | monthly | monthly | monthly | monthly | monthly | monthly | monthly | monthly | monthly |

Type of Funds Used | exchange-traded funds | exchange-traded funds | exchange-traded funds | exchange-traded funds | exchange-traded funds | exchange-traded funds | exchange-traded funds | exchange-traded funds | exchange-traded funds |

10-year Annualized Return (through Dec 2023) | 7.4% | 7.2% | 6.5% | 7.1% | 7.1% | 7.1% | 7.6% | 6.0% | 7.5% |

10-year Max Drawdown (through Dec 2023) | 24.4% | 26.3% | 27.0% | 26.4% | 23.8% | 26.4% | 24.5% | 22.5% | 23.0% |

10-year Downside Deviation (through Dec 2023) | 6.1% | 6.8% | 6.3% | 6.1% | 6.3% | 6.1% | 6.1% | 6.3% | 6.3% |

Link to Latest Data | t.risd | t.cdar | t.cvar | t.madd | t.loss | t.madm | t.mvar | t.mva2 | t.mva3 |