Default and term structure risks are necessary aspects for the performance of fixed-interest securities. Ignoring this information when comparing investment strategies will be misleading. This study proposes an algorithm derived from mimicking factor portfolios to neutralize risk differences, thereby distinguishing selection from market timing. With a well-diversified portfolio, this method allows multiple dimensions of risk to be managed concurrently, ensuring that the ultimate portfolio stays investable. The algorithm will be modified to ensure positive weights, thus offering greater flexibility in comparison with traditional methods. We apply it to credit sector portfolios to neutralize discrepancies within the Duration Times Spread (DTS) and find significant differences between risk-adjusted and unadjusted performance.
