📊 International Diversification & Multi-Asset Strategies

📍 EPFL – Master in Financial Engineering, Year 1 (2025)
👥 Team: Matthias Wyss, Adrien Aït Lalim, Liess Gröli, Massimo Berardi
📄 Final Report: Report
🔗 GitHub Repository: GitHub

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This project explores the construction and enhancement of global investment portfolios using:

• Currency-hedged international equity indices
• Equal-weighted, risk-parity, and mean-variance allocation frameworks
• Dynamic overlay strategies:
  • Momentum (MOM)
  • Long-term reversal (REV)
  • Currency carry (CARRY)
  • Dollar bias (DOLLAR)

Our dataset spans May 2002 to December 2024, covering equity and FX data across major developed markets. We assess both absolute and risk-adjusted performance (Sharpe ratios), and evaluate strategy orthogonality via regressions on the Fama-French 5 factors.

Key portfolio types include:

• 🌍 DIV: Currency-hedged risk-parity international equity portfolio
• 🔁 MOM/REV: Rotation strategies on past 12-month or 5-year equity returns
• 💱 CARRY/DOLLAR: FX strategies using 3-month interest rate differentials
• 🧮 STRAT: An optimized fund combining DIV, T-Bill and dynamic overlays to meet a 15% target volatility

The optimized portfolio achieves a Sharpe ratio above 4, with statistically significant alpha and low correlation to traditional equity risk premia.

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🛠 Tools & Libraries:

• Python
• Jupyter Notebooks
• WRDS (World Indices, T-Bills)
• FRED API (Interbank Rates)
• Custom Backtesting

📐 Techniques:

• International Diversification
• Currency Hedging
• Risk Parity Allocation
• Mean-Variance Optimization
• Multi-Factor Regressions (Fama-French 5)
• Statistical Significance Testing