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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How funds incur fee to investors?
I am trying to understand how funds incur fee onto its investors.
I found out that a typical fund fee structure is 2% of AUM and 20% of the excess profit.
If fund received 10MM capital from an ...
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40 views
Model for allocating capital between statistical arbitrage opportunities?
Dear users of quantstackexchange,
I am currently creating a model with my team to look for the best (the highest returns) statistical arbitrage opportunity. This model will scan a significant amount ...
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2answers
183 views
Find k of n assets that "minimize" the correlation matrix
I'm trying to find an efficient way to select $k$ from $n$ risky assets that are the least correlated with each other. I know that I can perform a brute-force search of all $k$-sized combinations of ...
2
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1answer
59 views
Fama French regression with dummy variable
I am looking to run Fama-French regression on a portfolio of stocks.
I am looking to specify a regime using a dummy variable.
This dummy variable could be a low volatility/ high volatility marker.
...
2
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2answers
159 views
Statistical methodology for proving the stability in time of asset allocation weights
I am comparing the set of weights obtained by the classical Markowitz allocation process with those of another asset allocation technique I have devised.
Markowitz's weights are unstable, as the ...
2
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2answers
149 views
How to evaluate Asset Allocation skill?
There have been studies that show that Asset Allocation can explain 90% of the variance of returns on a portfolio. If true and Asset Allocation is the primary driver of return risk, how can you ...
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47 views
How do I have to calculate the risk free rate of my two asset portfolio?
Good afternoon everyone!
I have a question regarding the risk free rate of my two asset portfolio. For my course, we have to create a two asset portfolio with the time frame of 2015-2020 with monthly ...
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29 views
Minimize Composite Dispersion
Let's say that we have a composite of 10 fixed income portfolios, each with the same benchmark, the US Aggregate. Additionally, let's say that each portfolio has a position in Corporation ABC. The ...
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2answers
80 views
Why is Robust Allocation a worthwhile problem?
As opposed to
Robust Bayesian Allocation solves
see https://hudson-and-thames-portfoliolab.readthedocs-hosted.com/en/latest/bayesian/robust_bayesian_allocation.html.
I don't get it. Why is this a ...
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0answers
43 views
How to reduce a covariance matrix after clustering?
I have an N = 100 covariance matrix. I am clustering the covariance matrix say into 5 clusters.
How can I compute the reduced ...
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1answer
137 views
Calculation of Market portfolio from efficient frontier
I have a specific Portfolio frontier. Can someone provides me with details about how can I calculate the market portfolio from the efficient frontier? I know that I have to draw the tangent line from ...
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56 views
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:
...
2
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1answer
79 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
110 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 ...
4
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3answers
481 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
51 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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410 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
207 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
97 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
46 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
71 views
Difference between Money management / Asset allocation / Portfolio optimisation
maybe an ill-posed question, please advise 🙂
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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293 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
42 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 ...
2
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1answer
138 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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34 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
74 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
94 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
65 views
Highest asset allocation contribution to the fund’s 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
359 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
160 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 ...
6
votes
3answers
350 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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48 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
votes
1answer
267 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
589 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
131 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
537 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 ...
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0answers
45 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
votes
1answer
124 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
114 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!
4
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3answers
206 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
145 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
2k 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
4k 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
189 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
181 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
138 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
351 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
846 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 ...
4
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1answer
543 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 ...
