Stack Exchange Network

Stack Exchange network consists of 174 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers.

Visit Stack Exchange
Join us in building a kind, collaborative learning community via our updated Code of Conduct.

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, ...

0
votes
0answers
10 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 ...
2
votes
1answer
50 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 ...
2
votes
2answers
54 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 ...
-1
votes
0answers
21 views

Conditional vs. Unconditional CAPM - Estimation

Let's recall the CAPM model in it's unconditional form: $$R_i=R_f + \beta_i(R_m-R_f)$$ where $R_i$ is the return of asset $i$, $R_f$ is the riskless rate of return, $R_m$ is the market return and $\...
0
votes
0answers
31 views

Compute the beta of portfolios constructed from the Betting Against Beta strategy [on hold]

http://pages.stern.nyu.edu/~lpederse/papers/BettingAgainstBeta.pdf I am trying to understand how to apply the Betting Against Beta strategy. Let's for instance consider two stocks A and B with $\...
0
votes
0answers
34 views

optimal tracking error allocation from Blitz and Hottinga

Just curious how to derive the optimal tracking error allocation in Blitz and Hottinga "Tracking error allocation" JPM 2001 Vol. 27 4 p19-26 research paper? (SSRN) From blitz and hottinga's paper, ...
0
votes
1answer
40 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....
-1
votes
0answers
33 views

Portfolio semideviation

Is it possible to calculate portfolio semideviation analogically to portfolio volatility, i.e., by weighting particular asset's semideviation by their participation in total portfolio worth? I would ...
0
votes
0answers
69 views

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 ...
0
votes
2answers
83 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 ...
0
votes
0answers
41 views

Market Maker portfolio management

I would like to ask you about articles/strategies related to portfolio and invertory management for Market Maker and to management of order cancellation, updates of order etc. Most of the strategies ...
0
votes
1answer
36 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 ...
0
votes
1answer
72 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 ...
1
vote
0answers
27 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 ...
0
votes
0answers
50 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 ...
1
vote
0answers
57 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 ...
0
votes
0answers
28 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 ...
3
votes
1answer
138 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 ...
1
vote
0answers
41 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 ...
0
votes
0answers
43 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 ...
1
vote
0answers
59 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 ...
0
votes
2answers
61 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 ...
0
votes
1answer
62 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? ...
3
votes
1answer
119 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 ...
2
votes
0answers
22 views

z-score of an active return with a no-volatility benchmark

I don't know how to approach the problem I am having. Basically, the statement I am trying to make is: the fund's return is X standard distribution away from the mean. Normally, for a single fund, ...
3
votes
1answer
78 views

Ledoit Wolf shrinkage with constant correlation prior with tawny and Riskporfolios

I am trying to use R to perform the shrinkage of covariance matrix towards constant correlation as defined in 'Honey, I Shrunk the Sample Covariance Matrix'. I see there are two packages where this ...
-1
votes
1answer
66 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 ...
5
votes
3answers
98 views

Measuring alpha (Academia vs the Industry)

During academia, I learned to evaluate the performance of a portfolio by calculating alpha as the following: $\alpha_{i} = (R_{it}-R_{ft})-[\beta_i(R_{BMK_t}-R_{ft})]$ where $\alpha_i$ and $\beta_i$ ...
3
votes
0answers
57 views

difference between Meucci fully flexible probability and markov regime swtiching models?

What is the difference between A. Meucci's Fully Flexible Probability (FFP) and Markov Regime Switching Models ? They seem very similar to me, FFP based on state variables that define regimes will ...
1
vote
1answer
64 views

Portfolio duration

What is the correct way to calculate duration of a fixed income portfolio with long and short bond positions? And how to calculate portfolio YTM with long and short positions. For long only (or short ...
3
votes
3answers
207 views

Fund size and alpha

During my research I found that fund active returns (alpha), measured by Fama and French four factor model, decreases as the fund increases in size (asset under management). What are some reasons ...
3
votes
1answer
78 views

Portfolio volatility of discontinuous portfolio

I would like to calculate an investor's average portfolio volatility as a measure of risk aversion. My problem is, that the portfolios are not continuous: the investor can have an open position for ...
1
vote
0answers
27 views

Portfolio Immunization from Yield Perspective

Let's say we have the following situation: an asset (mortgage) with fixed payments, a prepayment & oas models to run through, and calculations for duration, convexity, and price, based on them. ...
0
votes
0answers
39 views

How to pick one stock in each asset class when Rebalancing

A little background, I'm using Python's PyAlgoTrade library to develop a trading strategy. I have access to each stock's Open, High, Low, Close (/Adj), and Volume for a given day. Currently, I ...
0
votes
0answers
46 views

How to allocate additional capital to an already fully balanced portfolio?

Most sources seem to talk about allocating a fixed amount of capital to a portfolio, and then periodically rebalancing it, as far as i can tell. Assuming an already balanced portfolio, how would one ...
1
vote
1answer
167 views

Active Portfolio Management: What is the logic behind this equation? [closed]

In the CFA Curriculum Level II Readings (link) it is stated without further comment that: $(SR_{p})^2 = (SR_{b})^2 + IR^2 $ where, $(SR_{p})$ = Sharpe Ratio of an actively managed portfolio; $(...
0
votes
0answers
27 views

Proper Equity and FX CFD Long-Short portfolio proportions definition

I am very new to Quantitative Finance, although I have somewhat experience in trading CFDs. I am trying to create a Market Risk Management Tool in Excel VBA that should calculate CVaR of a mixed ...
1
vote
1answer
49 views

Testing the accuracy of a created Index

So long story short, I created a Oil/Energy Index from a basket of 5 stocks in the asset class. I am looking to use mean-reversion, in order to help rebalance the allocation of funds between ...
0
votes
1answer
51 views

Volatility of a leveraged CFD portfolio

I want to calculate the portfolio volatility (as a weighted average of the products) and the portfolio consists of CFD contracts with multipliers ranging from 10 to 50 depending on the underlying ...
1
vote
0answers
73 views

Beta of options based strategy

This is probably a simple/dumb question, but I am not getting it. As per GMO's recent Insight: Second, as can be inferred from Exhibit 1, put writing strategies have a low beta to the equity ...
0
votes
0answers
33 views

Continuous returns in BS-market

Let's assume we are in a Black-Scholes market. The price processes in the BS-market are given by $dP_0(t)=P_0(t)rdt, P_0(0)=1$ $dP_i(t)=P_i(t)\cdot(\mu_i dt + \sigma_idW(t))=P_i(t)\cdot \left(\...
0
votes
1answer
113 views

Semivariance calculation (downside deviation)

what is the accurate formula for semivariance? I see two versions up to now: this version which considers as N (denominator) all the numbers over/under the mean-or any other number. This is the ...
0
votes
1answer
45 views

performance attribution - security selection= wB*(Rp-RB) or wP*(Rp-RB)?

Really confused. Finding various different ways of calculating security selection alpha. I believe it matters from whose perspective one is looking at. I am a portfolio manager and I want to know ...
0
votes
0answers
57 views

Average Return Differential calculation

I am reading Table II Page 28 in Value at Risk and the Cross-Section of Hedge Fund Returns by Turan G. Bali, Suleyman Gokcan, and Bing Liang. link Please can anyone explain the calculation of t-...
0
votes
1answer
109 views

Long short equity hedge fund question

I have a question related to long short equity hedge funds. 1) What are some of the metrics used to perform risk analysis of long short equity funds on fund level? Volatility (standard deviation), ...
0
votes
0answers
69 views

Difference between binomial and CRR model

What is the difference between a binomial and CRR model. I know what a binomial model is, but in CRR also there are subintervals where prices change like a one period binomial. I think I haven't ...
1
vote
0answers
78 views

shrinking covariance matrix for assets coming from different asset class

From this paper: Ledoit, Olivier, and Michael Wolf. "Honey, I shrunk the sample covariance matrix." (2003). I learned a way of shrinking the covariance matrix to get more robust portfolio ...
0
votes
0answers
40 views

Portfolio Duration Immunization Strategy Intuition

It makes sense if we think of portfolio duration with duration, say 6, as a 6 year zero bond which you will receive the amount at maturity no matter the interest rate change. But if we define duration ...
2
votes
1answer
174 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 ...
1
vote
1answer
75 views

Mathematical definition of a hedge?

For two given portfolios/trading strategies I want to know what criteria need to fulfilled in order to call the one portfolio a hedge to the other. In other words; what is the mathematical definition ...