I'm trying to optimize portfolio of undervalued and portfolio of overvalued stocks. I have simulated scenarios of stock returns, and based on them I would like to find optimal weights. One criteria is just to minimize Conditional Value-at-Risk (ES), another - maximize profit (for risky investor). The simple intuition is that risky investor would take overvalued stock because it may continue growing; the defensive one will take undervalued since they are less likely to go lower. (I see that this logic is very very far from perfect, nevertheless, it may have a chance to live). So, there are 2 main questions:
1)Does it make sense to take quantile for 25% highest returns for each stock, and based on this find "likely the most profitable" assets? (Something like an opposite for value at risk).
2)Are there any specific criteria for optimizing porfolio of only undervalued/overvalued stocks? I understand that the question is vague because under/overvalued doesn't imply any specific in behaviour of stock. However, maybe there are some, and I would be glad to hear them. Thank you in advance!