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.

Filter by
Sorted by
Tagged with
6 votes
2 answers
6k 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}) - ...
  • 245
19 votes
3 answers
5k views

Why do expected return models and risk models use different factors?

This is a question responding to weekly topic challenge. I happen to see an interesting question from SYMMYS by Michael Kapler. I always approached expected return and risk modeling as separate ...
  • 448
32 votes
3 answers
5k views

How do you mix quantitative asset allocation with qualitative views?

Usually in asset allocation you have a quantitative approach (which can be from example mean-variance), but you (or you and your firm) also have a more qualitative approach given market-conditions, ...
  • 11k
4 votes
2 answers
443 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?
  • 217
15 votes
1 answer
2k views

Optimization: Factor model versus asset-by-asset model

In portfolio management one often has to solve problems of the quadratic form $$ w^T \Sigma w + w^T c \rightarrow \min_{\omega} $$ with portfolio weights $w \in \mathbb{R}^N$ a constant $c \in \mathbb{...
  • 13.4k
13 votes
4 answers
27k views

How to construct a Risk-Parity portfolio?

If I would like to construct a fully invested long-only portfolio with two asset classes (Bonds $B$ and Stocks $S$) based on the concept of risk-parity. The weights $W$ of my portfolio would then be ...
  • 133
10 votes
2 answers
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 ...
  • 103
8 votes
3 answers
1k views

How do you remove expected returns from asset allocation strategies?

The classic mean-variance optimization problem tries to minimize variance of a portfolio for a given expected return: $$ \underset{w}{\arg \min} \quad w^T \Sigma w \quad \text{s.t} \quad \mu^Tw \geq \...
  • 11k
5 votes
2 answers
969 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 ...
  • 1,953
5 votes
1 answer
317 views

Reference Request: Horse Race for Portfolio Allocation

Probably the most popular horse race study for portfolio strategies is Optimal versus Naive Diversification: How Inefficient Is the 1/N Portfolio Strategy?, with DeMiguel, L. Garlappi and R. Uppal. ...
  • 1,446
4 votes
3 answers
504 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 ...
  • 5,517
3 votes
2 answers
325 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 votes
2 answers
941 views

High values of skewness and kurtosis of realized protfolio returns

I am investigating some asset allocation strategies and I am wondering about the results I obtain. I am working on monthly and weekly data of the same stock indices (SP500, FTSE 100 etc). And when I ...
  • 491
2 votes
1 answer
956 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 ...
  • 145