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Imagine this hypothetical situation: I have a time series of cumulative performance of a fund and two time series of equities that are highly correlated to them. I know that that this fund ONLY applies money in those two equities, since his conception.
Is there a way to compute the average allocation(in %) of this fund in those two equities given only those informations? Any hints or advices are more then welcomefu
A good method for getting the proportions would be to use Sharpe's returns-based style analysis. Style Analysis is a constrained regression. Regress the returns of the fund against the two underlying equities and you can see weights in the individual equities. This method would come with a lot of caveats though - the weights returned would be an average over time. If there is a high turnover in the fund, then it is not likely to be very accurate.
Without any further information about how the fund makes allocation decisions, and if it only invests in those two securities, which are highly correlated, meaning that there is not much else reason to select one over the other, then the average allocation the fund is likely making is 50% towards each asset.
