As asset pools get larger, however, this diversification benefit can erode as short-term momentum signals create noise that can work against the strategy. DDM addresses this using clustering techniques to divide the investment universe into buckets of similar risks, loosening dependency on correlation estimates and uncovering hidden alpha.
With back-tests showing 4.6% annualized returns over 10 years, the bank is pitching the strategy to insurance clients. One who had seen the product described it as ‘extraordinary’.
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