How to add volatility target to Inverse Volatility, CLA & HRP?

AI & Machine learning
1

Course Name: Portfolio Management using Machine Learning: Hierarchical Risk Parity, Section No: 15, Unit No: 5, Unit type: Notebook

I just wonder how to add volatility target to Inverse Volatility, CLA & HRP with leverage 2?

Thanks

2

Hi Dav,



You can optimise risk and returns by adjusting the position size based on volatility. Volatility targeting specifically aims to reduce the position size in highly volatile markets. On the other hand, in low volatility the position size can be increased. 



In addition to the changing position sizes you may also need to monitor and adjust the leverage to align with your risk and return objectives.



To read more about volatility targeting, you can go through the glossary on this topic.



In addition to this, you can learn, create, implement and backtest various position sizing techniques such as Kelly and Optimal f by enrolling to the Position Sizing in Trading course.



Hope you find this helpful!



Thanks

Rushda