# Questions tagged [markowitz]

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### How to prove that the feasible set of a two-asset portfolio is a hyperbola?

The question comes from ‘Mathematics for Finance: An Introduction to Financial Engineering’ by Marek Capiński (Author), Tomasz Zastawniak. The book does not give a complete proof, and I did not find a ...
37 views

### GARCH for Mean Variance Optimization

I am currently trying to carry out a mean variance optimisation, with the implementation of GARCH. I'm not sure if this is going to make complete sense as my understanding of GARCH is limited. In the ...
41 views

### Scaling returns to use PCA?

Many machine learning techniques perform better, if the data is preprocessed - either by normalization (MaxMin Scaler) or standardization (Standard Scaler). But that comes with a lack of ...
1 vote
94 views

### Calculating marginal risk contribution of FX for foreign asset portfolio

I am a European investor investing in US equities. My US equities portfolio returns in EUR can be broken down into (1) equities returns in USD terms, and (2) USDEUR spot currency returns. Using the ...
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1 vote
79 views

### Discuss how you would allocate your budget between the two assets if their correlation is 1, 0, or -1

An asset A is expected to yield a $2\%$ return with a standard deviation of $1\%$, and another asset B is expected to yield a $1\%$ return with a standard deviation of $1\%$. Discuss how you would ...
• 111
148 views

### Calculation of break-even correlation for diversification effect in N-assets case?

I'm thinking about a generalization of the following case: for 2 assets, there is a diversification effect as soon as i obtain a positive weight for the minimum-variance portfolio in the asset with ...
• 543
76 views

### Backtesting on factor model residual returns

I've heard in quantitative equity strategies, people backtest signals on residual returns. How does this work in practice? Do people find signals that forecast residual returns and then run the full ...
• 500
1 vote
66 views

### Robust estimates of variance covariance matrix

I am looking for help from other people with experience creating variance covariance matrix that have enough predictive power to actually lower portfolio volatility out of sample. Using real world ...
1 vote
284 views

### PCA for portfolio optimization (Markowitz)

Suppose that I've used the spectral theorem of linear algebra to completely decompose the covariance matrix. I now know the largest and smallest eigenvalue, which corresponds to the largest and ...
60 views

### How to change the covariance matrix for a parallel-shift of the efficient frontier?

I'm trying to obtain a parallel shift in my efficient frontier based on the Merton 1972-parameters. As i think a picture tells you more than 1000 words here is what i tried: The setting of my problem ...
• 543
78 views

### How to construct the behavioral efficient frontier

I just stumbled across an interesting chart in Meir Statman's book "Finance for Normal People" where he introduces his behavioral portfolio theory. There, he also provides the following ...
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364 views

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1 vote