Hedging Inflation Risk: A Nowcast Approach Under Risk Target Constraints

March 10, 2023

Our multi-asset allocation strategy based on inflation nowcasts and RavenPack sentiment analytics outperforms the S&P 500 and stabilizes volatility. With real Sharpe ratios of up to 1.25 and a risk control approach, it delivers a compelling inflation hedge for investors.

Hedging Inflation Risk image

RavenPack’s latest white paper proposes a multi-asset allocation strategy for hedging against inflation, which maximizes the portfolio's mean-variance criterion by investing in equities, commodities, and bonds based on inflation nowcasts. Backtested against the US equity market, a 10-year US government bond, and six conventional commodity indexes, the proposed strategy outperformed the S&P 500® in terms of return, volatility, Sharpe ratio, and maximum drawdown.

Key Results:

  • The proposed strategy can outperform the S&P 500 in terms of return, volatility, Sharpe ratio, and maximum drawdown.
  • Our approach delivers impressive real and gross Sharpe ratios of 1.04 and 1.25 (gross), and 0.97 and 1.22 (gross) for headline and core CPI nowcasts, respectively, while catering to risk-neutral investor preferences.
  • The risk target approach allows for effective stabilization of portfolio volatility around a desired target level.
  • Our risk control approach yields remarkable results:
  • When targeting volatility levels is 2% 5% 8%
    We achieve Low Realized Volatility Levels 1.9% 4.6% 7.6%
    High Sharpe Ratios 2.40% 1.68% 1.46%
    Annualized Turnover 132% 300% 468%

Watch the video summary


By providing your personal information and submitting your details, you acknowledge that you have read, understood, and agreed to our Privacy Statement and you accept our Terms and Conditions. We will handle your personal information in compliance with our Privacy Statement. You can exercise your rights of access, rectification, erasure, restriction of processing, data portability, and objection by emailing us at privacy@ravenpack.com in accordance with the GDPRs. You also are agreeing to receive occasional updates and communications from RavenPack about resources, events, products, or services that may be of interest to you.


Read More

RavenPack Nowcasting accurately and promptly predicts real-time economic variables. It is based on a cutting-edge combination of low-frequency macroeconomic variables and high-frequency sentiment indicators.

February 20, 2023

Nowcasting volatile inflation with RavenPack Analytics

Our recent white paper illustrated that the nowcasting model with RavenPack Analytics outperforms standard approaches for asset allocation.

February 7, 2023

Nowcasting China's Economic Activity with Real-time News Sentiment

Using a cutting-edge approach that incorporates at a large scale low-frequency macro-economic variables with high-frequency sentiment indicators, RavenPack is able to nowcast China's macroeconomic indicators with enhanced accuracy and timeliness.

December 1, 2022

Using Sentiment Data to Build an Inflation-based Allocation Strategy

High inflation has returned in developed markets after decades of lying low. In our latest paper, we show how to build an inflation-based asset allocation strategy using sentiment data and we illustrate that sentiment-based strategies outperform models that depend merely on past observed inflation values.

Enhancing Macroeconomic Forecasting Using Sentiment Analytics images
September 27, 2022

Enhancing Macroeconomic Forecasting Using Sentiment Analytics

In this presentation, Paolo Andreini, Senior Data Scientist at RavenPack, introduced a macroeconomic nowcasting model,based on RavenPack EDGE, that can help predict real-time economic activity.

May 25, 2022

From Real-Time News Sentiment to Economic Activity Nowcasting: BRIS Countries

RavenPack presents a macroeconomic nowcasting model that leverages its EDGE data platform to predict real-time economic activity of four important emerging market economies: Brazil, Russia, India and South Africa.