Alternative to Efficient Frontier

This notebook is to examine alternative to traditional markowitz efficient frontier by looking at Hierarchical Risk Parity based on Lopez de Prado.

Markowitz Efficient Frontier

Traditional efficient frontier looks at the standard deviation to returns of a security and optimizes the weights.

HRP

HRP contains 3 main steps

• Divides up the assets into hierarchical clusters
• Assets separated into clusters by correlation
• Recursive Bisection

Source:

• Advances in Financial Machine Learning (Lopez de Prado 2018)
• https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/599440_paper.pdf https://quantdare.com/hierarchical-risk-parity/