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seen Apr 9 '12 at 14:28

Jul
29
awarded  Nice Answer
Feb
8
awarded  Yearling
Apr
2
awarded  Nice Answer
Feb
8
awarded  Yearling
Mar
29
comment How to optimize a portfolio under *both* maximum diversity ratio and minimum variance
My approach would be to minimize variance subject to constraints on correlation to the portfolio.
Feb
8
awarded  Yearling
Feb
6
comment Calculating log returns using R
Or the more traditional, fewer characters: diff(log(prices)) which also works when 'prices' is a matrix with times in the rows and assets in the columns. The other lesson is that 'lag' doesn't do what we naively expect it to do.
Jan
21
answered Does random matrix theory (RMT) for returns' correlation matrices apply if there are high correlations?
Jan
18
answered Do markets typically fall fast, and rise slowly
Jan
4
answered How can higher co-moments be applied to portfolio optimization in an asset allocation context?
Jan
4
comment How can higher co-moments be applied to portfolio optimization in an asset allocation context?
It is higher order arrays, not matrices. Kurtosis is 4-dimensional with a bunch of symmetry to it.
Dec
31
comment How to improve the consistency of explained variance statistics in a linear equity model?
Build the model by what works out-of-sample. When signal to noise is essentially zero, the in-sample statistics are at best just noise and more likely misleading.
Dec
31
comment What is the relation between return volatility and return rank volatility, and how can I control the latter?
Portfolio Probe is the one I had in mind. I see two possibilities to get where you want easily: 1) maximize portfolio variance, for which (I think) you need an optimizer that doesn't mind negative eigenvalues in the variance matrix. 2) a minimum constraint on portfolio variance. Though there may be other ways to trick something into giving you what you want.
Dec
31
answered How to improve the consistency of explained variance statistics in a linear equity model?
Dec
30
comment What is the relation between return volatility and return rank volatility, and how can I control the latter?
You can get a variance matrix for the assets by estimating it on ranks rather than returns. Then if you want your portfolio to have large volatility in that sense (I'm not convinced you really do), then you could use an optimizer to get that. (You may have a hard time with many optimizers, I know one where it would be easy.)
Dec
30
comment Why is the first principal component a proxy for the market portfolio, and what other proxies exist?
Why do you care about beta in the first place? That will have a big effect on what to do. I suggest that there are reasons not to care about beta: portfolioprobe.com/2011/02/08/…
Dec
28
comment How to apply risk-parity portfolio construction to a dollar-neutral portfolio?
Further explanation is at portfolioprobe.com/features/constraints/… In long-short risk fractions are typically positive or only slightly negative. The target that SRKX suggested is aiming at what I'm doing, and it would get reasonably small. Having all the risk fractions positive is certainly feasible. One of my attempts has a range of 0.04460133 to 0.05099992 with 20 stocks.
Dec
28
comment How to apply risk-parity portfolio construction to a dollar-neutral portfolio?
There are various conventions for weights in long-short. My favorite is the sum of absolute values equals 1. Using this convention, dollar neutral is the same as the sum of weights equals zero.
Dec
28
answered How to apply risk-parity portfolio construction to a dollar-neutral portfolio?
Dec
21
comment How to account for market movement when some exchanges are closed?
Tal, Agreed. Essentially you're saying you have a hard problem.