
Based on a recent theorem due to the authors, it is shown how the extreme tail dependence between an asset and a factor or index or between two assets can be easily calibrated. Portfolios constructed with stocks with minimal tail dependence with the market exhibit a remarkable degree of decorrelation with the market at no cost in terms of performance measured by the Sharpe ratio.
11 pages including 3 figures
FOS: Economics and business, Quantitative Finance - Trading and Market Microstructure, Statistical Mechanics (cond-mat.stat-mech), FOS: Physical sciences, Condensed Matter - Statistical Mechanics, Trading and Market Microstructure (q-fin.TR)
FOS: Economics and business, Quantitative Finance - Trading and Market Microstructure, Statistical Mechanics (cond-mat.stat-mech), FOS: Physical sciences, Condensed Matter - Statistical Mechanics, Trading and Market Microstructure (q-fin.TR)
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