Optimal Asset Allocation Model during the Economic Recession

Abstract

Due to the impact of the COVID-19 pandemic, the economic situation of various industries around the world has been affected to varying degrees. Different asset types are affected in different ways. As most non-institutional investors lack sufficient professional skills, investors tend to invest in low-risk assets. Some investors only invest in a single asset without a reasonable portfolio allocation of multiple assets, resulting in the risk of one asset being equal to or higher than the portfolio investment of multiple assets. This report mainly uses the CAPM model, based on financial data from China and America from 2020 to 2022, to analyze the correlation coefficients, alpha, beta, and excess returns between different time series and different variables to get a Sharpe ratio, aiming to find the optimal model in various asset allocation combinations (stock indexes, bonds, commodity futures, and cryptocurrency). This paper mainly analyzes the forecasting ability of future returns of different asset types through a time series model and risk premium scatter diagram.