The Inverse of the Coefficient of Variation as a Portfolio Weighting Factor: An Empirical Analysis of Returns for the Consumer Discretionary Sector 2019-2017

Title

The Inverse of the Coefficient of Variation as a Portfolio Weighting Factor: An Empirical Analysis of Returns for the Consumer Discretionary Sector 2019-2017

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Description

Portfolio stock weights based on the mean-variance proposition suggests that investors for any given level of risk will attempt to maximize returns and for any given level of return, will attempt to minimize risk. In this study, I used the inverse of the coefficient of variation (COV) as a proxy for the investor’s return/risk ratio. Using 1/COV, I develop portfolio stock weights for the 20 top stocks by market value in the SPDR Consumer Discretionary sector ETF (XLY). I give higher weights to stocks with higher return/risk ratios and rebalance these ratios annually. I use a 3-year moving average of stock returns to capture the return/risk ratios. Performance is calculated for the years 2009-2017. The benchmark is the S&P 500 SPDR ETF SPX.

Publication Date

4-18-2018

Project Designation

Independent Research

Primary Advisor

Tony S Caporale, Robert D Dean

Primary Advisor's Department

Economics and Finance

Keywords

Stander Symposium poster

Comments

Presenter: Emily Marie Teutsch

The Inverse of the Coefficient of Variation as a Portfolio Weighting Factor: An Empirical Analysis of Returns for the Consumer Discretionary Sector 2019-2017

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