Style Analysis

Beyond The Style Box: Unconstrained Returns Based Style Analysis

2012-03-27 01:18:41
Marc Odo
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One question we get at Zephyr is, “Is it possible for a manager to fall ‘outside the style box’? "Shouldn’t a high-momentum growth manager or a deep value manager fall beyond the corner indices?” The answer is yes, there is a way you can have managers plot outside the box.

Style Analysis

StyleADVISOR implements returns based style analysis as set forth by Stanford professor and Nobel Prize winner William F. Sharpe. Returns based style analysis calculates a Style Benchmark for a manager from the manager’s return series and the return series of the indices that are to be used in the Style Benchmark. Thus, we are given:

Style Analysis

Most managers have an investment philosophy that leads to a process for building portfolios. That process causes the portfolio’s returns to behave in a certain way. This behavior is what we call style. There are two ways to determine a manager's style of investing, holdings-based style analysis or returns-based style analysis. We believe that returns-based style analysis is best and explain why in this article.

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