ARTÍCULO
TITULO

Long-Short Market Neutral and Index Tracking Strategies Based on Cointegrated Portfolios

João Frois Caldeira    
Marcelo Savino Portugal    

Resumen

The traditional models to optimize portfolios based on mean-variance analysis aim to determine the portfolio weights that minimize the variance for a certain return level. The covariance matrices used to optimize are difficult to estimate and ad hoc methods often need to be applied to limit or smooth the mean-variance efficient allocations recommended by the model. Although the method is efficient, the tracking error isn?t certainly stationary, so the portfolio can get distant from the benchmark, requiring frequent re-balancements. This work uses cointegration methodology to devise two quantitative strategies: index tracking and long-short market neutral. We aim to design optimal portfolios acquiring the asset prices? co-movements. The results show that the devise of index tracking portfolios using cointegration generates goods results, replicating the benchmark?s return and volatility. The long-short strategy generated stable returns under several market circumstances, presenting low volatility.

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