RT Journal Article SR Electronic T1 Practical Applications of An Index Methodology for Diversifying Business Risk JF Practical Applications FD Institutional Investor Journals SP 1 OP 6 DO 10.3905/pa.6.2.290 VO 6 IS 2 A1 Rory Riggs A1 Jonathan Chandler A1 Mark T. Finn YR 2018 UL https://pm-research.com/content/6/2/1.8.abstract AB In An Index Methodology for Diversifying Business Risk, published in The Journal of Index Investing, Rory Riggs and Jonathan Chandler, both of Syntax, LLC, and Mark T. Finn, of Vantage Consulting Group, introduce a methodology for constructing an equity index in which the weight assigned to each component is determined by reference to the nature of the business risks to which it is exposed. The methodology uses the technique of statistical stratification to maximize the index’s diversification across different categories of business risks.Using the populations of the S&P 500 and the S&P MidCap 400 indexes, the authors compare the performance of stratified indexes created using their methodology to both market-capitalization-weighted and equal-weighted indexes comprising the same components. They find that the stratified indexes delivered higher returns and higher Sharpe ratios than the others.TOPICS: VAR and use of alternative risk measures of trading risk, performance measurement