PARTIAL · allocation
Hypothesis
Allocating capital across uncorrelated strategy sleeves by equal risk contribution (rather than equal capital) improves the aggregate Sharpe.
Math — equal risk contribution
Choose weights so each sleeve contributes equal risk:
$$ w_i\,(\Sigma w)_i = w_j\,(\Sigma w)_j \quad \forall\, i,j $$
Method
Estimate the sleeve covariance (cleaned via N-058 RMT), solve for equal-risk-contribution weights, rebalance monthly, compare aggregate Sharpe vs equal-capital.
Results
| Aggregate Sharpe vs equal-weight | higher |
| Drawdown | lower |
| Dependence on stable covariance | high |
A real portfolio-construction gain — equalizing risk (not capital) across genuinely uncorrelated sleeves lifts aggregate Sharpe and smooths drawdowns. The catch is it needs a stable, well-estimated covariance (hence the RMT cleaning). This is how sleeves are combined, not a sleeve itself.
Most of a multi-strategy book’s Sharpe comes from how the sleeves are weighted, not from any one sleeve. Equal capital over-weights the riskiest sleeve by accident.