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Questions tagged [portfolio-management]

The professional management of an investment portfolio of various securities (shares, bonds and other securities) in order to meet specified investment goals. The process includes the specification of investment objectives and constraints, choice of asset mix, formulation of portfolio strategy, selection of securities, execution, revision, and evaluation.

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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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1answer
30 views

Calculate New Portfolio Weights Given Today's Returns

I'm looking for a formula to recalculate my portfolio's weights at the end of time $T$ given a vector of the asset weights at $T$, and a vector of returns at $T$ For example: weights = 0.2, 0.3, 0.5 ...
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28 views

Black Litterman - Sector rotation

I was wondering if anyone here have ever tried to introduce sector rotation with regards to the Black-Litterman model. I want to try to expand the BL model by introducing this feature, however I have ...
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63 views

CAPM - market portfolio vs real portfolio

I'm trying to understand the relation (if there is any) between the market portfolio, as described by the CAPM theory, and a real portfolio (just like the one I plotted in the image below). More ...
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1answer
42 views

Looking for a paper related to tail risk of hedge funds and its decomposition

I am looking for a paper related to hedge fund tail risks (think skewness and kurtosis), decomposition of the tail risks into several components and their interactions with each other, other funds, ...
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17 views

Calculating Prepayment and Actual Term of Loan Portfolio

I'm attempting to calculate the prepayment speed of group of loans (ex:60-month auto loans) and determine the real term length (60 month term repaid in 49 months). I also have a large amount of ...
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25 views

How to reasonably aggregate returns across both different assets and different time-horizons?

This might be a somewhat open question, so any suggestion of improvement is welcome. Suppose at time $t=0$, we have $N$ different assets whose weights are $w_1,\cdots,w_n$ ($\sum w_i = 1$), and they ...
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17 views

How to properly modify an utility function and extensive list of functions

Scenario: After reading the https://quant.stackexchange.com/help/dont-ask help page, I really don't know if this kind of question is suitable to this place or if its just too open ended, therefore I ...
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1answer
36 views

How to find basket of stocks that are the inverse of yet another or ETF (never short)?

Suppose want to long an inverse of an ETF, rather than short the ETF itself. Is there a way to determine some mix of component stocks that would mimic the returns of such an inverse ETF (where also ...
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1answer
57 views

implementing Volatility Managed Portfolios

How to I calculate the value of c in the vol-managed equation specified by Moreira & Muir Volatilty Managed Portfolios (2016) Equation 1? Portfolio return in month t+1 =$$\frac{c}{RV_t^2}f_{t+1}$$...
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28 views

Mean-cVaR model: How can one include transaction cost

$$ \min \delta CVaR - (1-\delta) \sum_i^{n} \mu_i x_i \\ \sum x_i = \sum x^{old}_i \\ Losses(s) = \sum x_i - \sum_i^{n} (R(s,i))x_i \\ VaRDev(s) = Losses(s) - VaR \\ CVaR = VaR + \frac{\sum_s^{} ...
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1answer
88 views

why bridgewater filing only shows 10 billion in AUM

bridgewater supposed to manage 200 billion, but it 13F filling only shows 10 billion in AUM https://fintel.io/i13f/bridgewater-associates-lp/2018-09-30-0 why is it?
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1answer
88 views

R: backtesting with path dependencies

I have a historical PMwR journal of trades (one for each side of position open/close) in R. I wish to backtest trade sizing algorithms, one of the inputs to which calculation will be, on-the-day ...
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79 views

How to calculate “Differential Sharpe ratio”?

Instead of using the "sliding the time window" method of calculating the sharpe ratio under online framework, they've defined "differential sharpe ratio" as such But under equation 5, you can ...
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1answer
69 views

Construct a butterfly interest rate portfolio to eliminate PCA exposures

I have data from 2012 to 2016 for interest rates whose term range from 2 month to 30 years, a total of 10 Principal components can be calculated. Then I want to construct a portfolio, $$WFLY = w_1 *5Y ...
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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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2answers
67 views

Confused on Portfolio's Net Exposure

I am trying to calculate the Net Exposure of Portfolio including bonds, stocks, Gold, etc. Firstly, I calculate the net exposure of every product/symbol(Long position minus Short position). Then, I ...
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1answer
58 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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1answer
77 views

Markowitz optimization - can two sets of returns produce the same set of weights?

The portfolio optimization problem I have in mind is a minimum variance optimization with positive weights, formulated as below: I am trying to show that the solution is unique, specifically in the ...
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1answer
54 views

Creating value weighted portfolio returns. How to handle missing data?

I am creating portfolios using stock data. I have some missing data for certain months. What is the best way to handle this? Should I treat missing months as a return of zero? I want to try and ...
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1answer
76 views

How does Kenneth French create the industry portfolio returns?

Kenneth Frenches Data Library includes industry portfolios. Is this done via a software of some type. I have some stock returns but I want to calculcated the returns of the industries in the ...
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38 views

target correlation for portfolio

Given a long / short equity portfolio, I want to have some net long exposure. My portfolio volatility is fixed to a target, so in trying to have a certain beta to the market, the only thing I can ...
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69 views

Does Academic Research Destroy Stock Return Predictability?

McLean/Pontiff (2016) give evidence that portfolio returns are 26% lower out-of-sample and 58% lower after publishing an academic paper on variables, which are likely to predict cross-sectional ...
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Mean-Variance portfolio: How do I compute the variance when the portfolio is normalized

Let's consider the very basic of a Mean-Variance Portfolio: $$ \text{max}_{x} (1-\lambda)\sum_i^n\mu_ix_i-\lambda\sum_i^n\sum_j^n x_i Q_{ij}x_j $$ $$\text{ s.t. }\sum_i^nx_i=1 \text{ , } x_i \geq ...
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2answers
142 views

Does historical backtest data mean anything? [closed]

Sorry for this being a basic question. If I take a stock’s historical data and check for some rule I have found to buy/sell = what happened if I bought and sold this stock according to this rule in ...
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2answers
255 views

Why is Fama French model a risk model

I get this question from interviewer about what is alpha model, what is risk model and why is Fama-French a risk model. As my understanding, alpha model forecast expected return, so the factor could ...
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1answer
46 views

Capital call VS Capital Commitment [closed]

I would like to understand the difference between capital call and capital commitment and needs to know the importance of these items in portfolio management
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1answer
63 views

Country allocation -optimization 3 countries

I have the following problem: an equity portfolio allocated to 3 countries. Each country has an independent indicator (signal) which takes values from -4 to 4. The allocation for each country at ...
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2answers
78 views

How to calculate the multi-asset class portfolio vega?

I am viewing a risk report of a hedge fund and the portfolio vega seems to be a plain summation of the vegas of the different asset classes the fund invests in (i.e. Equity, Credit etc) As far as I ...
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2answers
276 views

Portfolio Analysis Interview Question

Suppose you have a portfolio of 100 options. Then I give you a subset of trades in which you can make. The trades consist of possible buys/sells of different options from different clients. Discuss ...
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2answers
193 views

What is the strategy for this piece of information

Heavy Math background, very light finance background: Suppose I have a stock $S$ whose price is measured by the market once on times $t_0$ $t_1$ $t_2$. Now the market has some opinion for how the ...
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1answer
81 views

Examination of Betting Against Beta

http://pages.stern.nyu.edu/~lpederse/papers/BettingAgainstBeta.pdf In this article the authors explain a theory/strategy called Betting Against Beta. My background is more in Math rather than finance ...
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2answers
85 views

name of this portfolio optimization strategy

I have come across a portfolio selection strategy that buys in equal amounts the top decile of expected earners, and simultaneously short sells the lowest decile in a similar fashion. What is this ...
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1answer
56 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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Portfolio risk analysis

I would like to ask you if somone knows how to generate risk measures (such as VaR, Beta, Drawdown, Volatility, etc...) over a Portfolio that hold positions for approximately 7 working days. Imagine ...
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2answers
101 views

r: analyse series of historical positions as portfolio using 'standard' tools

I have a series of historical trading positions in the form Symbol OpenPrice OpenDate InvestmentInDollars CloseDate ReturnInDollars I need to evaluate the ...
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157 views

Market Maker portfolio management

I am interested in articles/strategies related to portfolio and inventory management for market makers and to management of order cancellation, updates of order, etc. Most of the strategies from ...
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1answer
41 views

Risk attribution model without weights data

I was just wondering if there are risk attribution model that does not require the asset weights data. It appears that most risk attribution models do require asset weight data. I am looking for model ...
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1answer
81 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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32 views

Benchmarking of Portfolio weights

I have 5 stocks and a commodity in my portfolio which I have allocated based on maximum Sharpe Ratio optimization. I need to benchmark them against an Index and compare the portfolio weights. How do I ...
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55 views

Constrained Optimization for performance attribution

I am trying to perform constrained opmitization for portfolio performance attribution analysis. Specifically, I am trying to determine the impact of sectors performance on the S&P 500 index. Min ...
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138 views

Calculating Ex-Post Sharpe Ratio

I'm trying to calculate an Ex-Post Sharpe Ratio for my portfolio and I would appreciate verification I'm doing it correctly. I have my portfolio's daily returns in one column and my benchmark's ...
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0answers
51 views

How to compute the portfolio risk when weights are negative?

In QMiF (p. 239) , the variance of a portfolio is defined as: V(R) = w'Vw = w'DCDw = x'Cx Does this formula hold if the weights are negative (i.e., short)? For example, if I have a 5x5 covariance ...
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1answer
468 views

Absorption ratio by Mark Kritzman

In Principal Components as a measure of systemic risk, the author Mark Kritzman defines absorption ratio (AR) as the fraction of the total variance of a set of asset returns explained or absorbed by a ...
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0answers
74 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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0answers
46 views

Convert long/short stock portfolio into one sector ETF position

Assuming a portfolio contains long and short positions in stocks that are in the same sector, is it possible to create a similar overall position using only the sector ETF to which the constituents ...
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103 views

What to use for Tracking error minimization

What programs/packages can one use to minimize a portfolio's tracking error? What I am trying to do is see what ex post TE, portfolio returns and variance can be achieved when adding CSR constraints ...
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2answers
71 views

Calculation VaR on long term period

I'm calculating VaR numbers from historical data for a single instrument (it's plain vanilla, not a derivative) and receive such variables: I could provide necessary data, and formulas but I guess ...
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1answer
104 views

Portfolio correlation of a long-short portfolio

I have a portfolio of long/short positions in stocks. I would like to calculate the portfolio correlation. Should I somehow account for the short position while calculating the portfolio correlation? ...
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1answer
200 views

Portfolio forward return

I am working on a project which needs to find portfolio return for the next m months. To begin, let say investor hold a portfolio of $N$ stocks with weight $w_i$ invested in stock $i$, what is the ...