# 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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56 views

### How do you calculate the YTM of a multi-currency portfolio?

I would like to know how to calculate the aggregate YTM of a portfolio with bonds of different currencies
30 views

### What underlying distribution does one use while calculating the Stutzer Information Statistic?

Cramer's Theorem is used to derive this form for the Stutzer Information Statistic $I_p$: $$I_p=\max_\theta -\log(E[\text{e}^{\theta r_t}])$$ Here, $r_t$ is the portfolio's excess returns over some ...
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### portfolio rebalance weight up and down

I am rebalancing portfolio , where my algorithm has recommended new securities also there are few existing in my portfolio. For simplicity , let's say I want to wight my securities based in ...
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### Why minimum variance portfolio is used to construct factor models

I am reading Tsay's classic "Analysis of Financial Time Series" and I have seen him using minimum variance portfolio Relevant passage on the minimum variance portfolio here (Chapter 9, Page ...
481 views

### Brinson attribution for arbitrary set of style factors (size, momentum, vol, etc)

I'm looking to do a Brinson performance attribution on a portfolio of stocks where instead of decomposing the returns in terms of sectors we use factors instead. Basically, I want to do what Style ...
461 views

### Eurodollar futures volatility

Considering each point is 2500, how can I get the volatility of the jun 24 contract? On tastyworks I'm seeing a 0.7% iv for the contract, how can I translate it to standard deviation? Ex:sp500 15%...
261 views

### Setup for proving equation 3.4 from Grinold

I'm studying from Grinold's Active Portfolio Management right now, and used the below equation to answer one of the exercises: .. let us assume that the correlation between the returns of all pairs ...
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### Asset rate (elasticities ?) of substitution

I'm kind of a newbie in the finance research area. However, I'm working on cross-asset spillovers (transmission of shocks between assets) and my guess is that it comes from investors behaviors. ...
851 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 ...
1 vote
685 views

I saw this question as an interview, and to be honest, I have no idea what it's even asking for: Write a function (in R or Python) that finds the stock drawdown which will trigger a rebalance, if ...
1 vote
498 views

### Cover's universal portfolio vs. Markowitz's mean-variance model

Cover's universal portfolio maximizes the wealth growth rate Markowitz's mean-variance model minimizes portfolio variance Both allocate assets based on historical returns. How do these two models ...
1 vote
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### Reverse optimization: How to generate the expected portfolio returns given the weights and a series of constraints on those weights?

I have the below function in Python. My objective is to back out the expected returns associated with certain portfolio weights given a series of assumptions. From this I want to generate the expected ...
1 vote
49 views

### Fitting a Copula with GARCH volatility to stock returns

I have the log-returns $r_{n,t}$ for 3 stocks, $n=1,2,3$, and $t=1,..,T=365$ days, and I want to model the expected shortfall given arbitrary positions on those stocks. I calibrate the GARCH model ...
1 vote
141 views

### How to create a long-short portfolio on an academic basis

This question may have been asked before, but unfortunately the answers didn't help me very much. It's about how to create long short portfolios. In the papers you often read that they have created ...
1 vote
111 views

### Idiosyncratic risk calculation - Advanced Portfolio Management (Guiseppe Paleologo)

I'm struggling with the walkthrough of a calculation within this text. For anyone with the book it's an example from section 3.4.2. I will go through the steps here and show where I am getting lost - ...
464 views

### Using the Fama-French 5 factor model in Panel Data

I have a question regarding the use of the FF5 Factors in an industry-fixed effects model. In order to clearify my question I'll post an example of my dataset Note that this is just an example, the ...
1 vote
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### Shortcut for cutting portfolio volatility

When calculating the portfolio's historical volatility, do I need to factor the volatility of each asset individually and then do a covariance calculation or can I get away by measuring the volatility ...
224 views

### How to prove that the return criteria for adding an investment A to an existing portfolio can be represented using Sharpe Ratio Approach

How can I prove that the return criteria for adding an investment A to an existing portfolio can be represented as the below inequality using the Sharpe Ratio Approach for risk adjusted returns as ...
164 views

### Optimal weights in portfolio after rebalancing

I have a quite simple question but while looking for answers in research papers I couldn't find anything. The question can be summarized as : if you expect a shock on an asset, why don't you rebalance ...
58 views

### How do you interpret this data about corporate bonds? [closed]

If I have a corporate bond portfolio that has the following relative to the benchmark (this was given to me as interview question): Given an initial portfolio with the following statistics (as of ...
121 views

### Bonds in a zero interest rate environment

I've been looking at Pension Fund asset allocations. Why would they have any allocation to bonds in an zero interest rate environment? To make the point, let's assume the interest paid on these bonds ...
141 views

### When you have negative weights in the context of portfolio construction, what is the correct way normalize them?

For context, I am building an eigenportfolio following the conventions of Avellaneda and Lee Statistical Arbitrage in the U.S. Equities Market (2008), and I get negative weights for eigenportfolios 2,...
247 views

### When optimizing a portfolio for risk parity, can any portfolio weights turn negative?

As the title reads, when performing risk parity optimization (equal risk contribution amongst all assets to the portfolio volatility), is it possible for weights to turn negative? I understand that in ...
129 views

### If an option is undervalued, how does shorting a portfolio generate profit?

I am reading Hull's Options book. He introduces a one-step binomial model and a no-arbitrage argument, using the example shown in the picture below: Consider a portfolio consisting of a long ...
1 vote
60 views

### Measure of hedge efficacy or other means to compare hedging strategies?

Is there a measure of hedge efficacy or another means to compare hedging strategies? I have seen Institutional Investors take very different approaches to tail hedging. On one extreme, I have seen ...
53 views

### JP Morgan CreditMetrics

I am trying to apply CreditMetrics on a 2 bond portfolio. As far as I know, this model returns the expected recovery rate and the volatility between those 2 bonds, so my question is how I calculate ...
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### Constructing a Corporate Bond portfolio?

Is it possible to create a corporate bond portfolio such that its yield is 100bps higher that its benchmark, while still outperforming the benchmark (BBG Corporate bond Index)? I guess my question is ...
1k 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 ...
3k views

### Hedging a trade for PCA component neutrality

Suppose I am given a set of financial instruments, e.g. {1Y, 2Y, ..., 30Y} interest rate swaps or {Barclays, Lloyds, .. } FTSE100 companies. It doesn't matter which so let's go with IRS. I have ...
1 vote
122 views

### Standard deviation of large equal-weighted portfolios

Say I've got a portfolio of shares with the following parameters: Let $n$ be the number of shares in the portfolio, let $\bar\sigma$ be the average standard deviation (volatility/risk) for each share, ...
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### Commitment devices to remedy investment mistakes?

I'm looking into a new question that came up lately. Some of our clients here are prone to sell their gains too quickly while amassing larger positions of assets that have lost in value. Although this ...
435 views

### How do you interpret the portfolio DV01?

I am having trouble understanding the active dv01 of a portfolio? If the active dv01 of a portfolio is -10,000, what does that mean, all else equal? And what are different ways of increasing dv01 of a ...
1 vote
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### What is Ei in paper "How to Combine a Billion Alphas" by Zura Kakushadze? [closed]

I am reading paper "How to Combine a Billion Alphas" by Zura Kakushadze. In the paper, it has Ei which are the expected returns for alphas. It also has Ri hat as follows. I wonder what the ...
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### Why should investors be compensated for accepting systematic risk? [closed]

Investors should be compensated for accepting systematic risk, as it cannot be diversified. Why do the investors need to be compensated for accepting systematic risk? Because no one can avoid it and ...
1 vote
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### What is the correct method to maximize information ratio ex ante of a 150/50 portfolio against the S&P500

I have no problem forecasting and minimize ex ante information ratio for a market neutral portfolio, because the benchmark is just zero and you are just minimizing portfolio variance while maximizing ...
1 vote
205 views

### Calendar time portfolio construction

I am writing my master's thesis about analyst star-rankings and whether their recommendations have investment value. For these purposes I am trying to construct calendar time portfolios as it was made ...
56 views

### Two different ways to optimize ex-ante correlation of a long / short portfolio

Assuming I am making a long/short portfolio of S&P500 stocks and I would like to use the historical correlations to minimize ex-ante portfolio volatility. I can think of two ways of doing this: ...
31 views

### Minimizing tracking error for a 150 / 50 portfolio against the S&P500

I am trying to minimize tracking error ex-ante for a 150 / 50 portfolio, eg. it is 150 units long, 50 units short and market exposure of 100 units. It uses all 500 stock in the S&P500. I've ...
44 views

### Intuition behind portfolio weights with lower RMSE but higher variance

I have recently encountered a phenomena in portfolio optimization that has baffled me for days. I was experimenting with different ways of transforming a covariance matrix to get a stable minimum ...
121 views

### Liquidity Stress Test of Investment fund - Liquidation tracking error

It is my first message on this board, I have hesitated a few days before bothering you with my struggles, but I've seen a lot of very knowledgeable and patient people here willing to help out. I ...
121 views

### Evaluating estimate of covariance matrix

I am testing out different methods / shrinkages to estimate a covariance matrix and I am wondering what is the best method of comparing the estimated covariance matrix to the true covariance matrix (...
374 views

### Proof that Sharpe ratio of the benchmark is related to the maximal information ratio and Sharpe ratio

I understand the economic logic behind it, that the active portfolio with the highest information ratio will also have the highest Sharpe ratio, but I can't see how $SR_B^2 = SR_P^2 - IR^2$
66 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 ...
70 views

### equities hedging betas for a cross-sectional risk model

This question is on equities risk models. I would like to know how to define betas when using a cross-sectional regression approach, rather than the time series approach. My goal is beta hedging of a ...
65 views

### portfolio weights based on past returns

In the academic paper Industries and Stock Return Reversals by Hameed and Mian (JFQA,2015) (see picture below), the authors describe a trading strategy based on reversal, which essentially buys past ...
1 vote