Comparing mean–variance portfolios and equal-weight portfolios for major US equity indexes


We compared performance of mean–variance portfolios (MVPs) based on Pearson’s correlations (PeMVPs) and partial correlations (PaMVPs) with equal-weight portfolios (EWPs) for several tradable US equity index ETFs. We found that performance of MVPs and EWPs depends on two factors: the constituents of the underlying equity index and its holding period. When a market-wide index contained super-high growth technology stocks, such as FAANNG in the SPDR S&P 500 ETF, PeMVP being a concentrated growth portfolio unsurprisingly outperformed more diversified PaMVP and EWP. However, when FAANNG were dropped from the SPDR S&P 500 ETF, and even in the case of the SPDR S&P 500 Growth ETF (that does not have relatively low-performing value stocks), PaMVP outperformed PeMVP at one-month holding period. For other US equity index SPDR ETFs (S&P 500 Value, S&P MidCap 400, and S&P 600 SmallCap), PaMVP was always superior, and EWP could outperform PeMVP at shorter holding periods.

This is a preview of subscription content, log in to check access.

Fig. 1


  1. Aguet, D., N. Amenc, and F. Goltz. 2019. What Really Explains the Poor Performance of Factor Strategies over the Last 3 years? Scientific Beta, EDHEC Risk Institute.

  2. Becker Y. L. and M. R. Reinganum. 2018. The Current State of Equity Investing. CFA Institute Research Foundation.

  3. Booth, D., and E. Fama. 1992. Diversification returns and asset contributions. Financial Analysts Journal 48: 26–32.

    Article  Google Scholar 

  4. DeMiguel, V., L. Garlappi, and R. Uppal. 2009. Optimal versus naïve diversification: How inefficient is the 1/N portfolio strategy? Review of Financial Studies 22: 1915–1953.

    Article  Google Scholar 

  5. DeMiguel, V., Y. Plyakha, R. Uppal, and G. Vilkov. 2013. Improving portfolio selection using option-implied volatility and skewness. Journal of Financial and Quantitative Analysis 48: 1813–1845.

    Article  Google Scholar 

  6. Duchin, R., and H. Levy. 2009. Markowitz versus the Talmudic portfolio diversification strategies. Journal of Portfolio Management 35: 71–74.

    Article  Google Scholar 

  7. Elton, E.J., M.J. Gruber, S.J. Brown, and W.N. Goetzmann. 2009. Modern Portfolio Theory and Investment Analysis. New York: Wiley.

    Google Scholar 

  8. Fama, E.F., and K. French. 1993. Common risk factors in stock and bond returns. Journal of Financial Economics 33: 3–56.

    Article  Google Scholar 

  9. Gerber, S., H. Markowitz, and P. Pujara (2015). Enhancing Multi-Asset Portfolio Construction Under Modern Portfolio Theory with a Robust Co-Movement Measure. Available at SSRN:

  10. Green, R.C., and B. Hollifield. 1992. When will mean-variance efficient portfolios be well diversified? Journal of Finance 47: 1785–1809.

    Article  Google Scholar 

  11. Hirschman, A.O. 1964. The paternity of an index. The American Economic Review 54(5): 761.

    Google Scholar 

  12. Jacobs, H., S. Müller, and M. Weber. 2013. How should individual investors diversify? An empirical evaluation of alternative asset allocation policies. Journal of Financial Markets 19: 62–85.

    Article  Google Scholar 

  13. Jagannathan, R., and T. Ma. 2003. Risk reduction in large portfolios: Why imposing the wrong constraints helps. Journal of Finance 58: 1651–1684.

    Article  Google Scholar 

  14. Johnston, J., and J. DiNardo. 1997. Econometric Methods. New York: McGraw-Hill.

    Google Scholar 

  15. Kenett, D.Y., M. Tumminello, A. Madi, G. Gur-Gershgoren, R.N. Mantegna, and E. Ben-Jacob. 2010. Dominating clasp of the financial sector revealed by partial correlation analysis of the stock market. PLoS ONE 5: e15032.

    Article  Google Scholar 

  16. Kenett, D.Y., M. Raddant, L. Zatlavi, T. Lux, and E. Ben-Jacob. 2012. Correlations in the global financial village. International Journal of Modern Physics Conference 16: 13–28.

    Google Scholar 

  17. Kenett, D.Y., X. Huang, I. Vodenska, S. Havlin, and H.E. Stanley. 2015. Partial correlation analysis: Applications for financial markets. Quantitative Finance 15: 569–578.

    Article  Google Scholar 

  18. Kritzman, M., S. Page, and D. Turkington. 2010. In defense of optimization: The fallacy of 1/N. Financial Analysts Journal 66: 31–39.

    Article  Google Scholar 

  19. Lee, W. 2011. Risk-based asset allocation: A new answer to an old question? The Journal of Portfolio Management 37(4): 11–21.

    Article  Google Scholar 

  20. Markowitz, H. 1952. Portfolio selection. The Journal of Finance 7: 77–91.

    Google Scholar 

  21. Nadler D. and A.B. Schmidt (2014). Portfolio Theory in Terms of Partial Covariance. Available at SSRN:

  22. Ross A, T.J. Moskowitz, R. Israel, and L. Serban. 2017. Implementing Momentum: What have We Learned? Available at SSRN:

  23. Schmidt, A.B. 2009. Simulation of maker loss in the global inter-bank FX market. Journal of Trading 3(4): 66–70.

    Article  Google Scholar 

  24. Schmidt, A.B. 2018. Managing portfolio diversity within the mean variance theory. Annals of Operations Research.

    Article  Google Scholar 

  25. Shapira, Y., D.Y. Kenett, and E. Ben-Jacob. 2009. The index cohesive effect on stock market correlations. European Physics Journal B 72: 657–669.

    Article  Google Scholar 

  26. Tu, J., and G. Zhou. 2009. Markowitz meets Talmud: A combination of sophisticated and naïve diversification strategies. Journal of Financial Economics 99: 204–215.

    Article  Google Scholar 

  27. Whittaker, J. 1990. Graphical Models in Applied Multivariate Statistics. New York: Wiley.

    Google Scholar 

  28. Willenbrock, S. 2011. Diversification return, portfolio rebalancing, and the commodity return puzzle. Financial Analysts Journal 67(4): 42–49.

    Article  Google Scholar 

Download references


We are grateful to anonymous reviewers for valuable comments.

Author information



Corresponding author

Correspondence to Anatoly B. Schmidt.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Cai, H., Schmidt, A.B. Comparing mean–variance portfolios and equal-weight portfolios for major US equity indexes. J Asset Manag 21, 326–332 (2020).

Download citation


  • Mean–variance portfolio
  • Equal-weight portfolio
  • Partial correlations
  • Out-of-sample performance

JEL Classification

  • G11