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Volume 13
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Communication

Volatility-Adjusted 60/40 versus 100—New Risk Investing Paradigm

by
Jim Kyung-Soo Liew
* and
Ahmad Ajakh
Finance Department, Johns Hopkins Carey Business School, 100 International Drive, Baltimore, MD 21202, USA
*
Author to whom correspondence should be addressed.
J. Risk Financ. Manag. 2020, 13(9), 190; https://doi.org/10.3390/jrfm13090190
Submission received: 5 July 2020 / Revised: 18 August 2020 / Accepted: 18 August 2020 / Published: 20 August 2020
(This article belongs to the Special Issue Financial Optimization and Risk Management)
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Abstract

In this study we examine the volatility-adjusted 60/40 rule at the individual company level. We document that strong diversification benefits exist over the long-term, and that both the equity and corporate bonds exhibit positive expected drifts. For our sample of 30 large-cap companies, given that corporate bond positions have shown less volatility than the equity position, we leveraged the resultant portfolio of 60/40 to match that of the equity position. When we compare the two investments, we document an outperformance of 100 to 200 bps per year, even after we account for the leverage costs of 100 bps. We believe our work will open up a new risk investing paradigm for those seeking long-term advantages.
Keywords: corporate bonds; equities; leverage; investments; 60/40; portfolio; new risk paradigm; performance; finance corporate bonds; equities; leverage; investments; 60/40; portfolio; new risk paradigm; performance; finance

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MDPI and ACS Style

Liew, J.K.-S.; Ajakh, A. Volatility-Adjusted 60/40 versus 100—New Risk Investing Paradigm. J. Risk Financ. Manag. 2020, 13, 190. https://doi.org/10.3390/jrfm13090190

AMA Style

Liew JK-S, Ajakh A. Volatility-Adjusted 60/40 versus 100—New Risk Investing Paradigm. Journal of Risk and Financial Management. 2020; 13(9):190. https://doi.org/10.3390/jrfm13090190

Chicago/Turabian Style

Liew, Jim Kyung-Soo, and Ahmad Ajakh. 2020. "Volatility-Adjusted 60/40 versus 100—New Risk Investing Paradigm" Journal of Risk and Financial Management 13, no. 9: 190. https://doi.org/10.3390/jrfm13090190

APA Style

Liew, J. K.-S., & Ajakh, A. (2020). Volatility-Adjusted 60/40 versus 100—New Risk Investing Paradigm. Journal of Risk and Financial Management, 13(9), 190. https://doi.org/10.3390/jrfm13090190

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