Howard-D'Antonio Strategy

AAA

DEFINITION of 'Howard-D'Antonio Strategy'

An algorithm designed to maximize the expected return of a portfolio. The Howard-D'Antonio Strategy provides a hedge ratio and measures the hedging effectiveness of a given portfolio by explicitly taking into account both the hedger's risk and his/her return. In this way, an investor hopes to get the maximum return for the minimum amount of risk.

INVESTOPEDIA EXPLAINS 'Howard-D'Antonio Strategy'

The Howard-D'Antonio Strategy recognizes that the classic one-to-one hedge strategy doesn't make sense in all instances. This is because it uses a hedge coefficient of 1, whether past or expected correlations with spot prices and/or futures prices warrant it or not. The Howard-D'Antonio Strategy remedies this situation by assuming one has a choice between three investments: a spot position, a futures contract or a risk-free asset. The Strategy then looks at the risk-return characteristics of all three to derive the best, most profitable mix.

RELATED TERMS
  1. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  2. Hedge Fund Manager

    The individual who oversees and makes decisions about the investments ...
  3. Double Hedging

    Hedging a position by using futures and options, thereby doubling ...
  4. Catastrophe Futures

    Catastrophe futures are futures contracts traded on the Chicago ...
  5. Equity Market Neutral

    A hedge fund strategy that seeks to exploit differences in stock ...
  6. Hedged Tender

    A strategy in a tender offer where an investor short sells a ...
Related Articles
  1. Entrepreneurship

    New Tech Capitals Emerging In Various U.S. States

    While Silicon Valley has long been recognized as the home of tech giants, an increasing number of cities around the country are attracting tech startups.
  2. Investing

    How To Invest Outside Your Comfort Zone?

    Sometimes, when it comes to investing, we have to step outside of our comfort zone and use investment tools to express a market view or specific outcome.
  3. Investing

    How Do Millennial Women Invest?

    The theme for Women’s History Month is “Make it Happen”, and that is exactly what millennial women are doing when it comes to their investments.
  4. Forex Strategies

    The 10 Riskiest Investments

    Investors seeking high returns must also be prepared for high risk. Here are ten of the riskiest investments available.
  5. Options & Futures

    Feed Your Appetite For Chipotle Stock with Options

    Chipotle's stock may be out of the average person's price range, but options in-the-money call options offer a way to invest in the company.
  6. Options & Futures

    Was Buffet Right about Derivatives as WMDs?

    Why Warren Buffet described derivatives as weapons of mass destruction, and when can they be helpful or harmful?
  7. Mutual Funds & ETFs

    How To Choose The Right ETF?

    Choosing the right ETF really isn’t that complicated. If you stay focused on a few key areas, you may find the experience to be much easier.
  8. Investing Basics

    Explaining Market Value of Equity

    Market value of equity is the total value of all the outstanding stock as measured in the stock market at a particular time.
  9. Investing

    Cloud Investments: Profitable If Chosen Carefully

    By owning stock in cloud-based service companies, you can follow the latest trends and make money from the explosive growth in the cloud industry.
  10. Investing

    What Tech Companies Seeking Funding Must Overcome

    Tech companies face a unique set of challenges, including a need for timely responses to changes in technology and difficulty recruiting the right talent.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center