Proportionality between allocations in asset management

Abstract

Asset allocation refers to deciding the optimal participation of each asset within a portfolio. Therefore, these participations are a composition, and compositional methods should be used to treat the data and perform analysis over it. When trying to find relationships between parts of a composition, proportions have shown to be more suitable than correlations. In this paper, using a previous proportionality index as starting point, two new indexes are proposed and all of them are used to analyze the asset allocation in a portfolio composed of five stocks from the IBEX 35 (the Spanish stock market index). Results shed light on the connection between volatility, allocations and their proportionality.