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A Study on Diversified Investment Strategies Based on Industry Indexes of China Stock Markets: Comparison of Correlation Diversification and Volatility Diversification Strategies

Author(s)

Xinmeng Hou*, Qiankang Zhang

Affiliation(s)

School of Economics, Guangzhou College of Commerce, Guangzhou, Guangdong, China *Corresponding Author

Abstract

Diversified investment often involves allocating funds across multiple target assets, such as various industries. Paying attention to the changes in industry indexes is of great significance to investors. This paper selects five industry indexes: commerce, finance, petroleum, real estate, and public utilities. Using the global minimum variance strategy, the most diversified portfolio strategy, the minimum tail dependence strategy, and the equal risk contribution strategy, we compare the strategy allocation weights and portfolio risks of the domestic Shanghai and Shenzhen stock markets and the other stock market. The results show that for the same market, there are significant differences in the fluctuation amplitude and frequency of different industry indexes. The time trends of the same industry and the same period also differ significantly between different markets. Given the differences in industry indexes, the allocation weights, portfolio returns, and portfolio risks of the four strategies also vary in the two markets. Finally, this paper provides possible conjectures on the causes of these differences from the aspects of market structure and investor structure, and puts forward corresponding strategy recommendations.

Keywords

Shanghai and Shenzhen Stock Markets; Other Stock Market; Industry Indexes; Diversification; Investment Strategies

References

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