Risk-Based Portfolio Allocation Strategies with a Focus on Sustainable Stocks in Sweden

Abstract: This paper aims at analyzing the performance of six portfolio weight allocation strategies. The traditional Market Capitalization (CW), the Equal Weight (EW) and the Inverse Volatility Weighting (IVW) are heuristic based techniques and the Minimum Variance (MV), Maximum Diversification (MD) and Risk Efficient Weighting (REW) are risk-based. They are applied to a sample of Swedish stocks for an evaluation period ranging from 2004 to 2016. In addition, the same strategies are analyzed when applied to a subsample of sustainable firms. The Market Capitalization performs the worst. When applied to a broad universe, the risk-based strategies outperform the heuristic based. For the sustainable universe, the heuristic techniques deliver superior performance than the risk-based. From the risk-based strategies, the Maximum Diversification benefits from its application to the sustainable universe. The Equal Weight strategy experiences the largest performance improvement.