Questions tagged [asset-allocation]
An investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investors risk tolerance, goals and investment time frame.
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Calculating the eigenvector centrality of a portfolio described by a minimum spanning tree
I am working with the eigenvector centrality of a minimum spanning tree, which can be calculated as:
v(i) = lambda^-1 * sum[Omega(i,j)*v(j)]
where:
...
3
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1answer
65 views
Criteria for excluding an Asset Class from a Strategic Asset Allocation
While historically the return, volatility and correlation characteristics justified the inclusion of Sovereign Bonds (US Treasuries, European Central Bank Debt, etc) in Strategic Asset Allocation ...
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1answer
66 views
Capital Allocation, VaR, Expected Shortfall
Are there any serious drawbacks / weaknesses in the Euler allocation method, when used to allocate VaR capital (and potentially Expected Shortfall) to risk factors in a portfolio? I notice that ...
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3answers
450 views
Asset Allocation with near zero rates
With central banks pegging interest rates to near zero rates, an argument could be made that the future distribution of interest rates and bond returns are not normally distributed. How has modern ...
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1answer
49 views
I have missing data on my portfolio weightings but it can be solved through stock prices - how can I code to find this? [closed]
firstly I would like to say sorry for the title - its not the best. In fact its crap.
Here is my problem (I am new to coding btw - still learning)
I am using Python on my MacBook - using Terminal.
I ...
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125 views
Portfolio Performance Attribution Using Carino Smoothing
I'm trying to conduct portfolio performance attribution using Carino smoothing, but it seems that the active returns do not match and I don't know why. Here is the example I use:
\begin{array} {|r|r|r|...
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1answer
196 views
ETF pricing papers
May I request for research paper recommendations, if any, on existing models that study how the presence of ETFs affect equilibrium prices of the underlying assets?
I am exploring a project on a ...
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0answers
80 views
Are heuristic portfolios efficient portfolios?
Markowitz's definition of an efficient portfolio is one that minimizes portfolio risk for a given level of expected return. He therefore calls portfolios along the efficient frontier "frontier ...
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2answers
41 views
Calculating the allocation of a fund given two correlated variables
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 ...
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1answer
63 views
Difference between Money management / Asset allocation / Portfolio optimisation
maybe an ill-posed question, please advise š
What is the difference between the 3 concepts? They all seem about optimising some risk/reward ratio...
money management
asset allocation
portfolio ...
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77 views
Decomposition of Contribution to Variance
$C$ is a $N\times N$ covariance matrix of stock returns. Assuming $w$ is a vector of positions in each asset, the total variance of the portfolio is
$$w^TCw$$
The contribution to total variance of the ...
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1answer
41 views
How to build a portfolio following the Smart beta process by dividend? [closed]
I'm having trouble finding the method to track smart beta dividend management. I have an Excel file which contains the prices and the dividends of certain companies, and I want to build a portfolio ...
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1answer
105 views
Kelly Criterion in correlated stocks
I would like to ask if there exist any mathematical proof or model which addresses how the Kelly criterion can be applied to find portfolio weights when the stocks are correlated.
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32 views
Equivalent constructions of risk budgeted portfolios?
When building an ERC portfolio given covariance $S$, I am familiar with the approach in optimalPortfolio. It takes the risks of a given weight vector $(w_i * (S w)_i)$, divides it by total risk to get ...
2
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1answer
59 views
Trading Ranges for Tactical Asset Allocation
Do methods exist to determine trading ranges around benchmark weights/strategic asset allocation weights for a tactical asset allocation from the correlation structure between the individual asset ...
4
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1answer
84 views
What are non-variance (non Markowitz) based theories of capital allocation between non-correlated assets?
A large amount of literature in finance accepts the standard deviation in return as if it were an accurate measure of "risk."
What are some other financial theories for how to allocate capital ...
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1answer
54 views
Highest asset allocation contribution to the fundās performance
I am preparing for 2020 May FRM II test and will appreciate any explanation for this question:
In terms of asset allocation contribution, why is real estate made the highest asset allocation ...
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2answers
257 views
What does the concept “standard Markowitz approach” include?
Does "standard Markowitz approach" include only mean-variance approach or does it also include other approach such as minimum-variance approach?
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1answer
131 views
Portfolio/sub-portfolio optimization
I have a finite amount of 26 assets, the total amount of these assets needs to be allocated to 9 portfolios. Each portfolio has its own required return which needs to be met, using a min-variance ...
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3answers
343 views
Is there a way to figure out “hot” strategies?
Apparently, short vol strategies have gotten crowded, according to the recent Bloomberg piece. When I read this, I thought how about factor based strategies -- value, growth, etc.? Aren't they ...
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0answers
45 views
How long a time horizon should be for verifying the effectiveness of an investment strategy?
Question
To verify the effectiveness of a certain asset allocation strategy, how long a time horizon should be?
Is there any academic paper regarding this topic?
Question in more detial
I know ...
2
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1answer
195 views
How to calculate Information Ratio?
In the book titled "Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Controlling Risk" by Grinold & Kahn, the information ratio is defined as "the ratio of ...
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2answers
482 views
Strategic asset allocation research
I am currently trying to form an overall asset allocation strategy which combines base strategic allocation and tactical shifts. My model already incorporates the tactical shifts using various factors ...
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2answers
127 views
Optimal investment mix of equity and debt in a single company, HY vs IG
What is the optimal mix of equity and debt that an investor should invest in a single company?
If an investor invests in both the debt and equity of a company, they are in effect de-levering the ...
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1answer
374 views
Expanding window vs Rolling window z-score
I wish to find the z-score of a value measure( e/g P/E ratio) to compare them across asset classes, currently i am using an expanding window z-score to calculate the long-term mean and standard ...
2
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0answers
43 views
Crisis in in-sample period
I am backtesting a value momentum asset allocation strategy and my in sample period is from 2003 to 2011 and out sample from 2012 to 2019. I am optimising a cutoff for value on in sample to allocate ...
4
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1answer
111 views
Stress Testing approaches at Pension Funds/Asset Management companies
I am looking for resources on Stress Testing for non-banking institution, specifically for long term oriented Asset Management companies, Hedge Funds, Pension Funds, and other Investment companies. ...
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0answers
101 views
Residual Risk and Variance
I've solved part a, but am struggling with b and c. $x_m$ is the market portfolio vector, and I think $T$ should be a diagonal matrix. Any hints greatly appreciated!
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2answers
154 views
Multi-period portfolio allocation: Time-inconsistent approach
Consider a multi-period mean-variance portfolio optimization so that at time $t$ I find the strategy that maximizes my expected terminal wealth $X_T$, subject to a constraint on risk,
\begin{align*}
\...
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2answers
2k views
Implementing leveraged Risk Parity Portfolio using Direxion 3X ETF
The "common man" version of a leveraged Risk Parity portolio (40% stocks and 60% long term bond, Quarterly Rebalanced) can now be easily implemented using the 3X leveraged ETF's (UPRO=stocks, TMF=...
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0answers
127 views
Black-Litterman proof with P=I and Omega=tau*Sigma
Elsewhere on this site (link), Richard notes that
\begin{equation}
\Pi_{BL} = \frac{1}{2} \Pi + \frac{1}{2}Q,
\end{equation}
so long as we set $ P = I $ (where $I$ is the identity matrix) and $\Omega ...
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2answers
1k views
Compute allocation given long-short portfolio weights
The amount of capital allocated in each asset given long only weights is calculated as $allocation_i \ = K\cdot w_i$.
...
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2answers
3k views
How to calculate “portfolio cumulative return” from individual price data and weight of them?
I'm trying to run backtest in a vectorized way using Python Pandas and need to calculate a portfolio cumulative return from price data and weight of asset data.
I ...
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1answer
169 views
MPT Efficient portfolio /Asset allocation
When finding the optimal allocation using markovitz, the model will return '0' weights for assets that are "inefficient". What is the standard way for dealing with these weights if all assets have to ...
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1answer
161 views
Dynamic asset allocation strategies using a stochastic dynamic programming approach
I am currently reading Gerd Infanger's Chapter 5 on "Dynamic asset allocation strategies using a stochastic dynamic programming approach" in the Handbook of Asset and Liability Management edited by S....
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1answer
134 views
Preference between low (zero) and negative correlation
I am trying to create an artificial score grading user's portfolio correlation. In terms of diversification, lower correlation is obviously better. However, should negative correlation get a higher ...
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0answers
292 views
Problems with Black-Litterman: negative portfolio weights, and very poor returns
I am trying to implement the Black-Litterman model using own-defined views matrix (from consensus analysts). However, I have encountered the problems of negative portfolio weights in some periods, and ...
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2answers
717 views
Risk Parity / Equal Risk Contribution with Tail Risk Measures
Risk Parity or (synonymous) Equal Risk Contribution is an approach to portfolio construction which could work in theory with a broad class of risk measures. Yet, all references I have found so far ...
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1answer
470 views
Ledoit Wolf shrinkage with constant correlation prior with tawny and Riskporfolios
I am trying to use R to perform the shrinkage of covariance matrix towards constant correlation as defined in 'Honey, I Shrunk the Sample Covariance Matrix'.
I see there are two packages where this ...
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0answers
57 views
Looking for: List of 30 top-performing value investors in the US (AUM 100USD mn+; 10 years)
we are currently looking to build another database sourced by crawling the SEC (freely available at SimFin).
Our goal is to build a monthly updating database showing the holdings of the top value-...
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297 views
Mean Variance Optimization of 2000 pairs of securities (Python)
I would like to take the opportunity to ask for your help on an assignment I'm trying to complete.
For this 'Modern Robo Advisory' course we are asked to solve a (target) goal-based investment ...
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1answer
207 views
Why is this utility function not picking up its penalty?
I was reading this seminal paper by Infanger. On page 40, Figure 11. was quite interesting. In particular I was interested in the top one, 19 Years and I wanted to reproduce this plot. To give some ...
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0answers
60 views
Is the 'constant weight in the risky asset' portfolio-strategy self-financing?
My question concerns a topic in quantitative finance that I feel is often brushed under the table: is a given strategy self-financing.
We have two assets, one risky and one riskless, defined by the ...
4
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1answer
226 views
In practice, how do pension plans determine their risk appetite?
While I understand DB pension plans tend to use an ALM and surplus management framework to determine their asset allocation and risk/return objectives, I am wondering how in practice they determine ...
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4answers
2k views
Why is Markowitz portfolio optimisation so popular considering it is worse than an equal weighted portfolio?
The original paper by Markowitz from the '60s has ~20,000 citations (definitely popular). However several papers I came across show that a $\frac{1}{n}$ asset allocation gives higher Sharpe ratios (...
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2answers
2k views
Equivalent to Matlab's financial toolbox in python?
I've been working on making an asset allocation model that requires I price a lot of financial instruments (i.e. bonds, options) and optimize based on a certain constraint. I was originally doing this ...
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2answers
3k views
Calculating alpha and its meaning
According to wikipedia, CAPM model is described by:
$E(R_{i})=R_{f}+\beta _{{i}}(E(R_{m})-R_{f})$
And according to website such as http://investexcel.net/jensens-alpha-excel/,
$\alpha = E(R_{i}) - ...
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1answer
693 views
Minimize overall portfolio turnover under constraints
Assume I have M portfolios, each of them can be represented as a T by N matrix, where N represents number of stocks traded and T represents number of days. For each portfolio matrix, each row is under ...
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2answers
902 views
Does CAPM hold for markets with two risky assets?
Presentations of the CAPM often include statements similar to this:
While idiosyncratic risk can be "diversified away", systematic risk cannot, which is also expressed in the CAPM, which states ...
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36 views
Target date funds - glide path quantitative foundations?
Are there any introductions that show an academic proof or quantitative process for determining the proper asset allocations for a glide-path in a target date fund?
I've been trying to find something ...
