Hierarchical Equal Risk Contribution (HERC)
An evolution of HRP that targets equal risk contribution from each cluster of similar assets.
Category: Optimizer & Performance
What is Hierarchical Equal Risk Contribution (HERC)?
HERC builds on HRP by allocating capital so each branch of the cluster tree contributes the same amount of variance to the total portfolio. It tends to produce smoother allocations than HRP on heterogeneous universes.