Invest on the edges to avoid contagion, research suggests

Loosely connected assets are better protected against market crashes

business networks

Network analysis has been growing in popularity in risk modelling, but recent research suggests it may be useful in investment strategy as well.

By picking assets that are at the periphery of a correlation network, the research claims a portfolio is less likely to suffer from contagion during a downturn or market upheaval. Avoiding "interconnectedness risk" in this way outperforms benchmarks and conventional active strategies in terms of risk-adjusted return, in particular during downturns

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