Questions tagged [portfolio]

A portfolio is a collection of financial instruments. We often collect instruments together to represent the complete holdings of an investor and to analyze the overall risk (which may be lower due to diversification, i.e the portfolio holding multiple instruments).

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How to create Industry Portfolios per country?

Regarding the industry portfolio as created by Kennth R. French like here: https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/det_17_ind_port.html I was wondering how I could do this ...
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Basket variance with correlation 1

I'm reading the famous nuclear phynance primer on dispersion trading and finding difficulty in understanding the author's simplification for the variance of a basket with correlation 1. See below: I ...
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How to predict a portfolio's reversion?

Sorry if this has been asked before. I've been baffled by a question I'm facing. Assuming I know there are some certain demands for some stocks in near future, and I put them in a basket as a ...
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How to calculate the portfolio risk and return if daily share prices, volume held on that day is given for all assets?

The problem is with the changing volume of assets which changes the weights. I want to use the formula for portfolio risk but cannot figure out the weights. Should taking average weight of an asset ...
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Portfolio with Put Options - VaR, Std. Dev

I did a Monte Carlo simulation to evaluate my portfolio. I used different Strikes and Weights for the Put options. Now to my problem: All statistical measures (like expected return, volatility) ...
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Derivations of the pricing PDE for the Heston-Hull-White or Heston-CIR models

Consider the hybrid model given by $$dS=(r-q) S dt + \sqrt{v} S dZ_1$$ $$dv = \kappa_v (\theta_v - v) dt + \sigma_v \sqrt{v} dZ_2$$ $$dr = \kappa_r (\theta_r - r) dt + \sigma_r r^p dZ_3$$ with ...
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Double counting in turnover calculation

While reading Koijen's Carry paper, they states double counting when calculating the turnover, as below. I'm wondering if they are referring to buy and sell or something else. If I liquidate all my ...
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How to use coherent risk measure for evaluating price?

Coherent risk measures are defined by number of axioms (see e.g. Coherent Risk Measure) but a question that does not seem well studied is how to use them. Let's take a coherent risk measure $\rho$ and ...
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How do you cross-sectionally standardize a variable?

i am doing research on a so-called carbon beta where I made a portfolio that takes a short position in 'green' stocks and a long position in 'brown' stocks, from a period of 2005 until 2020. So from ...
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How to calculate the log return of portfolio?

Suppose that we have five trades each day with these returns ($R_{day,trade}$) and we have 300 days in total: $R_{1,1}$, $R_{1,2}$, $R_{1,3}$, $R_{1,4}$, $R_{1,5}$ $R_{2,1}$, $R_{2,2}$, $R_{2,3}$, $R_{...
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Marginal Risk Contribution Implementation Questions

Sorry if this is too obvious to you. The marginal risk contribution mentioned here is the same as in this post Marginal Risk Contribution Formula . I understand the concepts and derivation on the ...
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Constructing a Replicating Portfolio : Regression on Individual Constituents or their Average?

I would like to replicate a portfolio of stocks $S_1, \cdots, S_n$ using other instruments, $X_1, \cdots, X_m$. Using the letters above with a subscript $t$ to denote the forward returns over some ...
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mean return and volatility with transaction cost

What means that 5 bps per half-turn for transaction cost? How can I implement mean return and volatility with this transaction cost in formula or python code?
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long short portfolio sharpe ratio

What is the proper way to caluclate sharpe ratio for the long short portfolio? When I calculate daily return with no cost, I use this formula: (return for long k.mean()+ (-1)*(return for short k.mean()...
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Treasury futures and the TUT spread historical volatility

I'm doing a study at Rutgers on the TUT spread. The TUT spread is composed of 2 2-year treasuries and 1 10-year treasury per spread. I was trying to estimate the historical volatility of the spread, ...
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What is Leverage?

What would you consider leverage? I know this may sound like a basic question but I have spoken with several industry professionals with a significant amount of experience and all of them have a ...
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Correlation Matrix to Variance Covariance Matrix Portfolio STDEV

I have a correlation matrix that I wanted to convert into a variance covariance matrix. I also have the weights in a column in excel along with each assets standard deviation. What excel function can ...
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How to compute portfolio weight of forward contract

how would one formally calculate the portfolio weight of a Forward position? Suppose I have 100 mio portfolio. I have 50mio in Tesla shares and I have 50mio in Microsoft shares, and I enter into a 1 ...
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Optimization algorithm for maintaning portfolio weights

I'm writing an algorithm that outputs the number of stocks I have to buy for each product in order to get as close as possible to my target weights. I was thinking at this minimization problem: $$\...
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Incorporating market cap after Hierarchical Risk Parity (HRP) Portfolio Optimization. Using Black Litterman?

Hello financial experts :) I recently got interested in portfolio optimization. I'm still learning. As I'm familiar with python I started experimenting a little in JupyterNotebooks with riskfolio. I ...
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How to combine compound calls and puts such as to have a guaranteed fixed payoff at expiration?

Let there be 2 European vanilla options: Call; Put; Both options expire at time T2 > T1 > t=0. We also have 4 additional options available to us: Compound call on call; Compound call on put; ...
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How do you hedge a portfolio against a factor using index Futures?

How do you hedge a portfolio against a factor using index Futures? I constructed a long/short portfolio and dynamically hedge against an index, beta hedge. I realized that my portfolio is highly ...
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Pricing of factors - portfolio sorts

if I read that someone is using portfolio sorts to determine whether a factor is priced in the cross section ( risk premium ) is it the two-pass Fama-MacBeth regression? Is there a material that would ...
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compounding component contributions

Say I have a portfolio which contains two components, A & B. Below are the daily contributions to performance (0.02 equals 2%), where the overall portfolio return is equal to the sum of component ...
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How to simply calculate future value of periodic contributions to an index fund account?

So, for the sake of simplicity, ignoring taxes, expense ratio, volatility or anything else other than known values for the following five variables: Starting contribution (dollars) Annual ...
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Can I invest in the market portfolio of modern portfolio theory? [closed]

According to the theory, the market portfolio is composed of all assets weighted by their market capitalization, and this is the portfolio one should own. Is there a way to build a portfolio close to ...
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Why does the 2nd Principle Component of a portfolio explain lots of variance in the data but has a low R^2 to portfolio?

I have used QQQ (nasday etf)holdings and weights data in a PCA model to see what components drive the daily returns of QQQ. What I found was PCA 1 explains 52% of the variance and PCA 2 explains 19% ...
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Calculating average portfolio volatility

I have a question regarding calculating portfolio volatility. In my "problem", there are six portfolios. Five that have a holding length of one year and one that has a holding length of 200 ...
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Literature about optimal number of stocks in a diversified portfolio

Is there any recent paper on how many assets one should consider for portfolio optimization techniques? I found: – https://www.jstor.org/stable/2330969?seq=1#metadata_info_tab_contents – https://...
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Turnover Constraint ignores initial weights of Portfolio

I am trying to perform a standard portfolio optimization, but with a constraint to how much the final weights of the portfolio are allowed to deviate from a set of initial weights. I do this with the <...
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How can I calculate the annual Standard Deviation for Sharpe Ratio of Daily Portfolio Returns?

I'm somewhat confused with regards to calculating the annual standard deviation and Sharpe ratio for my portfolio of daily returns. I have daily data ranging from 1960-2020 and use Excel to make some ...
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Does random outperform naïve investment?

Randomly pick a (long only) portfolio from all possible portfolios over the S&P 500. The expected performance of this portfolio should equal the actual performance of the S&P 500. In contrast, ...
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What are some tools to help optimize size of an ABS portfolio with many constraints?

What are some tools (python preferred) used in the ABS industry to optimize the size of a credit portfolio, given many constraints? Constraints can be things like Weighted Average Credit Metric (e.g. ...
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How the spread portfolio t-test is calculated?

within my master thesis I am calculating the Pastor and Stambaugh (2003) liquidity factor (https://static1.squarespace.com/static/5e6033a4ea02d801f37e15bb/t/5f629437c9d51c5d00ad3ff3/1600295992687/...
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Why additivity assumption holds in CAPM and factor models? (Screenshot of a textbook included) [closed]

All the excerpts are from the book investment, written by Bodie. At the bottom of this post, I attached pages of the the book that show a related part of my question. Question 1. Why the variance of ...
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Unitise an options portfolio

Suppose I have a portfolio of European index options (long call, short put) and risk free assets (buy bank bills) to create a synthetic long index position. I wish to unitise this portfolio to ...
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python portfolio tracker

any recommendations for a portfolio tracker that updates from csv ( or websocket but that would need to come with an active github and hopefully a man page). New to python, mainly creating charts from ...
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Black-Scholes Portfolio

In the black-scholes model, the hedging portfolio is given (in some textbooks) by $$\Pi_t = V_t - \Delta S_t,$$ i.e., the portfolio consits of a long position in the option $V$ and $\Delta$ units of ...
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transforming a model to long short instead of long-only

I am currently trying to adapt a model to a long short portfolio strategy. The model is stated here: A Deep Reinforcement Learning Framework for the Financial Portfolio Management Problem by Jiang, Xu,...
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Interpretation of rebalance and reconstitute in equity portfolios of different weighting methods

What are the portfolio construction differences between equal-weighted and capitalization-weighted with regard to terms like reconstitution and rebalancing? Reconstitution seems very straightforward. ...
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Optimal active risk

Can someone help me prove the statement or share a link of the proof - "The optimal amount of active risk is the level of active risk that maximizes the portfolio’s Sharpe ratio. This optimal ...
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How to set a fixed return for mean-CVaR portfolio optimization?

I'm using the timeSeries and fportfolio package in R to minimize the CVaR with different constraints for a given portfolio. Everything is working out so far. However, I can't manage to set a fixed ...
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Information Coefficient (IC) Formulae Differences

I am learning about Fundamental Law of Active Management, and there seems to be two different Information Coefficient (IC) formulae presented. Though I myself am not a CFA candidate, these appear to ...
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zero-beta portfolio $z$ solves optimization problem

Consider a market with $p$ risky assets with expected return $\mu \neq k 1$ and positive definite covariance matrix $C$. Let $z$ be a zero-beta portfolio w.r.t the market portfolio $x_M$. Show that z ...
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What are some advanced portfolio rebalancing strategies?

Want to write some portfolio rebalancing code but have found only simple portfolio rebalancer strategies like calendar and threshold. I want to rebalance a portfolio with different asset groups (EQ, ...
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structural model - exposure estimation

The following example is from the book Active Portfolio Management by Grinold and Kahn. Suppose we have the factor returns and want to estimate the exposures/factor loadings. Say the factor returns ...
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Best books on portfolio construction?

I am a master of finance student and although I understand the basics and the theory of portfolio construction I am still struggling when it comes to the practical side of things, i.e. building a real-...
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Geometry of Efficient Frontier of Portfolios

I have been reading about Portfolio Theory, and though the algebra of it seems quite intuitive, I am having a hard time understanding it's geometry. For the sake of simplicity, I will only talk about ...
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Carhart 4-Factor Model intercept interpretation

I've been following studies such as Kempf & Osthoff (2007) and Statman & Glushkov (2009) in building a methodology measuring ESG portfolio performance centred around the Carhart 4-Factor Model....
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Bloomberg Get ETF Constituents

I used the PortfolioDataRequest aspect of the Bloomberg API in C++; however, when attempting to request the portfolio of the TAIL US EQUITY (an ETF), it returns an invalid symbol. I also tried using ...

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