The Contribution of a Constituent Time Period-Asset Pair: Longitudinal Decompositions
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In “The Contribution of a Constituent Time Period-Asset Pair: Longitudinal Decompositions,” forthcoming in the April issue of the Journal of Portfolio Management, Revanta Pawar, Portfolio Manager in the Portfolio Solutions group, describes a new framework for isolating the contribution to a given portfolio metric – volatility, for instance – of each of the constituent asset-time period pair building blocks that informs its measurement. Such delineation can be conditioned on arbitrary criteria of interest – both endogenous (decisions directly affecting portfolio weights) and exogeneous (characterizations such as inflation, market volatility, monetary expansion, etc.) – and contributions of flexible groupings of assets, time periods, or both, can be reaggregated additively, allowing the evaluation of the differential behavior of a portfolio or any subset of its holdings relative to the motivating, differentiated objectives. Asset allocators, consultants, and portfolio managers alike should find in these decompositions a host of powerful uses – some representative examples of which are illustrated – in portfolio analysis and investment decision-making.
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