The Adaptive Asset Allocation Portfolio: How To Maximize Return Using Minimum Variance And Momentum

Published: November 30, 2016

Summary

 

The Adaptive Asset Allocation (AAA) portfolio combines two different tactical approaches (momentum and minimum variance) into one algorithm.

 

The intention of this portfolio recipe is to optimize risk-adjusted returns by combining two approaches.

 

Michael Kapler implemented a version of this portfolio algorithm in 2012 and published his results.

 

We have updated the analysis and backtesting using current data.

 

The AAA portfolio has returned 14.8% per year over the past 10 years with a maximum drawdown of 13.4% over that same period.

 

Adaptive Asset Allocation (AAA) holds an alluring prospect for tactical investors: a nimble portfolio with a risk-adjusted return than beats the benchmarks. By combining two different tactical approaches (momentum and minimum variance) into one algorithm, the adaptive approach builds a portfolio that responds to market conditions with the promise of lower risk.


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