MinimumConnectednessPortfolio function

Minimum connectedness portfolio

This function calculates the minimum connectedness portfolio

MinimumConnectednessPortfolio(
  x,
  H,
  method = c("cumsum", "cumprod"),
  statistics = c("Fisher", "Bartlett", "Fligner-Killeen", "Levene", "Brown-Forsythe"),
  long = TRUE,
  metric = "StdDev",
  digit = 2
)

Arguments

• x: zoo return matrix (in percentage)
• H: Pairwise connectedness matrix or alternatively variance-covariance or correlation matrix
• method: Cumulative sum or cumulative product
• statistics: Hedging effectiveness statistic
• long: Allow only long portfolio position
• metric: Risk measure of Sharpe Ratio (StdDev, VaR, or CVaR)
• digit: Number of decimal places

Returns

Get portfolio weights

Examples

data("g2020")
fit = VAR(g2020, configuration=list(nlag=1))
dca = TimeConnectedness(Phi=fit$B, Sigma=fit$Q, nfore=10, generalized=TRUE)
mcp = MinimumConnectednessPortfolio(g2020/100, dca$PCI, statistics="Fisher")
mcp$TABLE

References

Broadstock, D. C., Chatziantoniou, I., & Gabauer, D. (2022). Minimum connectedness portfolios and the market for green bonds: Advocating socially responsible investment (SRI) activity. In Applications in Energy Finance (pp. 217-253). Palgrave Macmillan, Cham.

Ederington, L. H. (1979). The hedging performance of the new futures markets. The Journal of Finance, 34(1), 157-170.

Antonakakis, N., Cunado, J., Filis, G., Gabauer, D., & de Gracia, F. P. (2020). Oil and asset classes implied volatilities: Investment strategies and hedging effectiveness. Energy Economics, 91, 104762.

Author(s)

David Gabauer