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Questions tagged [portfolio]

The tag has no usage guidance.

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2answers
72 views

Portfolio volatility - Real life application

Given that a portfolio consists of Stock=USD 30, High-yield bonds(duration=5 years,spread duration=5 years) =USD 40 , Commodity = USD 30. I was given monthly data for MXWD Index for stock, CL1 Comdty ...
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38 views

Vega for long long-term ATM call and short short-term ATM call

You are long a long-term ATM call and short a short-term ATM call. The ratio is adjusted to make the total vega zero. If before expiry of the short-term option, spot is again at the strike price. ...
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0answers
38 views

Applying portfolio variance weight based on logarithmic returns?

The expected logarithmic return of a portfolio is calculated as : $$𝐸_p = \log\left(\sum_i w_i e^{R_i}\right)$$ Therefore, I was wondering that how can I apply weight to use with the variance based ...
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1answer
64 views

Classifying groups of stocks beyond Market Cap/Industry/Sector

I'm monitoring margin values for a portfolio and I want to classify the stocks in my universe using different metrics/information. Just for the sake of making analysis/inferences on the data I have. ...
2
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0answers
28 views

Which performance evaluation measure to assess “Connectedness Matrix” based porfolios?

1. Question Which performance evaluation measure would be best to assess the portfolios built on 'connectedness matrix'? The connectedness matrix is the concept introduced in the academic paper "...
2
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1answer
58 views

portfolio information ratio calculation on daily returns including hedged strategy results interpretation

I am tasked with calculating the portfolio information ratio on ~15 years of daily portfolio returns and I am finding several approaches online which is quite confusing. The first approach simply ...
2
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1answer
111 views

Arbitrage when risk-free portfolio earns less than riskless portfolio

I'm currently reading Paul Wilmott's excellent book on option pricing. Near the beginning, he constructs a risk-free portfolio using an option, and a short on the underlying to hedge the risk. I'm ...
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0answers
100 views

Some definitions in the BARRA Predicted Beta model

I'm studying the BARRA Predicted Beta model, and the common factor covariance between portfolio $p$ and the return on the market $m$ is defined as the product of the transposed vector of the factor ...
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39 views

Another variation of the 'Sharpe ratio' in CVaR-based portfolio optimization?

Question What is the ratio S(p) shown below? Do we have a name for it like 'Sharpe ratio'? The ratio above is introduced in the academic paper Optimal portfolio selection in a Value-at-Risk framework ...
2
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0answers
85 views

Portfolio Delta - long call, long put and short call

First and foremost, I'm trying to understand why you would construct a portfolio made up of long calls, long puts and short calls. I find this really abstract and confusing. I've tried drawing the pay-...
2
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1answer
89 views

Co-variance of Portfolio A with Portfolio B

I'm trying to calculate the correlation between two separate portfolios. I've used A*COV(AB)*B to calculate the co-variance of each portfolio where: A = Array ...
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0answers
80 views

Holding Period Return abnormally high

I've been doing my Dissertation and I was told to create a value - weighted portfolio on the 1979's 200 largest cap corporations (based on Market Value). I was also told that the correct way to build ...
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0answers
53 views

When does funding cost of a portfolio enter into the portfolio's present value?

This question comes from some confusion when reading Hull's book and from the general concept of no-arbitrage/self-financing portfolios in stochastic finance books. I am not fully seeing the ...
1
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1answer
42 views

Equal Weight better sharpe than Tangency portfolio

Could you explain to me what it means to have better Sharpe Ratio in Equal Weight portfolio than tangency portfolio (max sharpe). Thank you.
1
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1answer
71 views

Fama Macbeth regression and portfolio sort result contradiction

I ran Fama Macbeth (regression) on two variables called return and lag MAX ( monthly average return and lag of maximum return over a month). the results are like the following : ...
5
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1answer
284 views

How modern portfolio theory(MPT) and CAPM are related?

1. Question In what sense Capital Asset Pricing Model(CAPM) is related with Modern Portfolio Theory(MPT)? Why do we need to check whether the current price of assets is overvalued or undervalued ...
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0answers
38 views

Resource to learn about Long / Short Commodities portfolio

As title says, I'm looking to learn more about Commodities trading and how to report and monitor a Long short Portfolio. Can anyone point me to a good book / website where I can improve my knowledge? ...
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1answer
364 views

Portfolio Weight Sum and Negative Weights

I'm calculating the weights of 10 securities in a portfolio for a course project, with the objective of maximizing the sharpe ratio. I'm getting both positive and negative results for weights. The ...
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1answer
33 views

Differences Between Portfolio Daily Average Returns

I have a doubt about the average daily return for a 2 stock porfolio. I have the data of both stock returns over a 1511 day period. I used 2 approachs to calculate the average return. In the first one,...
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1answer
78 views

How to construct a risk parity Portfolio by fixing the portfolio volatility on a desired level?

I would like to get the weights of a risk parity portfolio (equal risk contribution). Therefore I use following formulas: $\sigma(w)=\sqrt{w' \Sigma w}$ $\sigma_i(w)= w_i \times \partial_{w_i} \...
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0answers
91 views

Is the Market Portfolio on the Markowitz Efficient Frontier?

I have seen "market portfolio" defined online (Wikipedia/Investopedia) as the bundle of all available investments where the assets are each weighted in proportion to their existence in the market. I ...
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1answer
66 views

What does risk tolerance represent for utility-maximizing optimization with linear constraints?

Referencing Wei Jiao (2003) p. 8, formula (1.12), for $Ax = b$ set of linear constraints in a portfolio, the solution for the optimum weights to maximize the utility is: $$w^* = \Sigma^{-1}A^T \left( ...
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2answers
710 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
95 views

Replicating portfolios [closed]

Prices of a stock are modeled using a two-period binomial tree, with each period being six months. The continuously compounded risk free interest rate is 7 % The stock pays 2 % continuous dividend. ...
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1answer
172 views

beginner portfolio statistics - annualized volatility of multi-asset portfolio

Sorry for the dumb question, but I wanted to make sure my understanding of what I read and compiled was correct! I am trying to calculate the variance-covariance matrix, and annualized volatility of a ...
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1answer
51 views

How to calculate the normalized value of a changing stock portfolio?

My goal is to compare a portfolio of stocks with a benchmark over time. Calculating the normalized value of a static portfolio is no problem, but I am struggling when stocks are removed or added to ...
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1answer
97 views

VaR for Options portfolio

I'm asked to estimate VaR for Options portfolio. Firstly, I wanna try to estimate VaR for AAPL stock european call option using Historical Simulation but I can't find any Historical Data. I tried ...
1
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1answer
104 views

Return Contribution for Annual Returns

I have a portfolio $p$ made up of a bunch of assets $i$ where the weights change slowly over time. The returns over each period $j$ composed of the weighted returns of the asset $r^j_p$ $$ r^j_p =...
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1answer
78 views

Calculating the long run average default rate when the portfolio changes during the year

The Basel rules prescribe to calculate a long run average default rate (LADR). It is stated that his rate should be calculated as the average of yearly default rates. A first idea what be: look at ...
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0answers
104 views

Backtest Portfolio Analysis

I actually finished an algorithm that i can use to extract all the trades for each stock (each file for each stock). Essentially, i run this code on Excel where there are the input about one stock, ...
1
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1answer
84 views

Questions related to Sharpe's return-based style analysis

I have been reading about Sharpe's return-based style analysis, which tries to determine the manager's exposure/effective asset mix to changes in the values of the asset classes. It does so by using ...
2
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3answers
295 views

Negative variance?

Using the formula w*Cov*t(w) I can generate a negative portfolio variance. What are the implications of a negative variance? Should I just assume it's zero? A negative variance is troublesome ...
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1answer
103 views

Portfolio turnover [closed]

Really easy question, but I am having doubts. If you want annual turnover, and you have monthly weights, wouldn't you just do in excel: {=ABS(CurrentMonthsWeights-LastMonthsWeights)*12} for each ...
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1answer
254 views

Correlation of assets to portfolio of assets

How do you calculate the correlation of an asset to a portfolio, when for all assets in the portfolio you know there: correlation to each other, volatility and weight in portfolio. For example: ...
2
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1answer
85 views

Explaining an Option product: SIX Discount Certificates

So I have the option with the important info above. I am trying to generate a portfolio that represents the option. However I am stuck on the first hurdle as I believe it is a call option as the ...
1
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1answer
124 views

R PortfolioAnalytics

I am not able to find PortfolioAnalytics package for windows from CRAN. New to R, will greatly appreciate any help how to find and install this package.
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0answers
77 views

Why Do Universal Portfolios Work?

I've been reading up on universal portfolios, but I haven't been able to find an intuitive explanation as to why they have the theoretical guarantees that they do, especially that they track the best ...
1
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2answers
49 views

What is the return of risky asset in direct utility optimization probem?

I am trying to do this portfolio optimization for a one-month investment between S&P 500 as a risky asset and one risk-free asset: Assume that I have a power utility function, a risk-free rate ...
2
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1answer
183 views

Portfolio Optmization With Risk Aversion Parameter R

I have this problem in R. $$\max w^Tu- y w^T A w$$ where A is covariance variance matrix, y risk aversion parameter. Is it rigth if I use the function solve.QP multiplying the covariance matrix for ...
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0answers
46 views

How to ascertain/establish certainty of a portfolio rebalancing strategy?

I created a portfolio rebalancing strategy, that I am currently paper trading with. It is, primarily, based on mean-reversion principle with a few rules in place, and geared towards cryptocurrencies, ...
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2answers
100 views

% Drawdown on Stock Portfolio to hit Margin Call

Margin requirement is industry standard at 30% of total portfolio (cash + margin loan) e.g. You have 600k in equities purchased with cash and 400k in equities purchased on margin loan. The total ...
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1answer
81 views

Creating riskless portfolio in black scholes

$$\begin{align} d\pi &= \theta dV + dS \\[3pt] & = (\theta \partial V/\partial t + \theta \mu S \partial V/\partial S + \theta S^2 \sigma^2 \partial^2 V/2\partial S^2 +\mu S ) dt + (\theta \...
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2answers
92 views

What returns to use?

I have monthly returns of my portfolio... I would like to summarize the performance over a longer period in one overall figure. Should I use log returns per month then use geometric mean on the log ...
0
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1answer
85 views

What is `1+ return` called? [closed]

Assuming day 1 my wealth is 1. At day 2 I earned 20%. So the rate of return is 0.2 and the wealth at day 2 is 1.2. At day 3 I earned 50 % again. So the wealth at day 3 is 1.8. I wonder what is the ...
2
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1answer
239 views

Creating a portfolio in R : good practices

I am quite new to quantfin, but wanting to learn. I've searched for the answer (google and stackex), but haven't found anything satisfactory (but I might not be asking the correct questions...) The ...
6
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1answer
278 views

Simple mean reversion strategy portfolio construction

I had a quick idea I wanted to test, but am not sure of the correct way to size bets. Basically, I think that for a given index (say S&P), I want to be long under performers and short over ...
4
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1answer
777 views

How to choose a tangency portfolio without a risk-free rate

How do you choose an optimal portfolio from the efficient frontier if no risk-free rate is given? I know that if there exists risk-free asset, then you would combine a portfolio from the efficient ...
2
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2answers
267 views

Gamma portfolio trading

It is being said that in a long-gamma portfolio, you follow a buy-low sell-high strategy for the underlying stock, which causes you to make profit. The Theta for this portfolio is negative. But it is ...
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2answers
143 views

Standard deviation of a long-short portfolio with net position zero

I've come across the following question and I'm slightly stuck in answering it: Suppose you have a two-stock portfolio that is long one stock of asset A, and short one stock of asset B, with A ...
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2answers
256 views

What is the delta of a portfolio invested in different stocks?

I understand that if I have a portfolio invested in stock A and options on stock A, the delta of my portfolio is going to be the weighted sum of the delta of the stock (=1) and of the option. Now if ...