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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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 ...
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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,...
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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 ...
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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 ...
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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%...
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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 (...
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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 ...
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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 $
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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 ...
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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 ...
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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 ...
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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 ...
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Linear programming and factor models vs M-V optimization?
I have been recently researching about portfolio optimization problems and it is unclear to me what is currently the state of art modeling choices when it comes to this topic.
On one hand, I've ...
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Dmat argument in solve.QP R function: Cov or 2*Cov?
Background
My final objective is to find a portfolio located on the efficient frontier from a choice of 100 stocks from a stock index (eg. S&P500).
This efficient portfolio will be such that ...
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Why do we need the covariance when calculating portfolio VaR?
I was recently learning about value at risk and how to calculate it, and one of the steps was to calculate the covariance of the returns of the securities making up the portofolio.
This makes sense ...
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Principal Portfolios Prediction Matrix estimation (Bryan Kelly)
I have recently discovered Bryan Kelly's paper on Principal Portfolios (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3623983) and had some doubts about the prediction matrix $\Pi$. He defines $\...
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Definition of Market-Neutral
I'm reading Qian, Hua and Sorensen's Quantitative Equity Portfolio Management and one part in section 2.3.2 (page 44) states that:
"For a long-only portfolio managed against a benchmark, the ...
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Difference between the two definitions of Ulcer Index
The Ulcer Index (UI) is defined as follows on page 89 of the book "Practical Portfolio Performance Measurement and Attribution, 2E" by Carl Bacon:
$$
UI= \sqrt{\sum_{i=1}^{i=n} \frac{D_{i}^...
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Existence of an upper bound for risk-factor betas/coefficients
Theory:
Based on Hansen/Jagannathan, the set of means and variances of returns is limited. With $R^f$ as the risk-free rate, $R_i^e$ as the return of stock $i$ in excess of $R^f$ and a stochastic ...
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Difference between Maximum Drawdown and Largest Individual Drawdown
Bacon in Practical Portfolio Performance Measurement and Attribution distinguishes between the two, specifying that "Maximum drawdown represents the maximum loss an investor can suffer in the ...
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Portfolio factorization for portfolio optimization
I am looking to do some basic portfolio constructions as an experiment to learn more about it. I have been researching a bit and what I have found is that one of the purposes of factors models (Fama-...
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Active risk management of private assets
It seems incredibly difficult to not only come up with a list of options for active risk of private assets (Private Equity, Private Credit, Infrastructure, Real Estate, etc.) but also get senior ...
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Average drawdown and average drawdown length in Python
I'm trying to use Python to give me more information about drawdowns than just the max drawdown and the duration of the max drawdown. I would like to determine the number of drawdowns that have ...
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Portfolio construction for almost identical assets
The problem I am looking at concerns the treatment of almost identical assets in portfolio construction.
Let us assume that we have two assets, both with a standard deviation $\sigma=0.2$ and a ...
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How to implement an “Active Long Volatility” Strategy?
The research paper "The Allegory of the Hawk and Serpent" describes an asset allocation referred to as the "Dragon" Portfolio, which allocates 18% to "active long volatility&...
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Why do low standard deviation stocks tend to have superior future returns?
I've recently stumbled on something that really surprised me. These papers (1, 2) find that past standard deviation of returns is inversely related to future returns. That is, portfolio of low ...
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Optimal leverage for 5 discrete steps
I received the following problem:
Your’re to invest EUR 100 for five years in a portfolio of stocks
delivering normally distributed returns with µ = 0.05 p.a. and σ = 0.1
p.a. For each EUR invested ...
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Rebalancing delta hedges has an implied gamma. Is there a good way to estimate an "effective gamma" from a rebalancing strategy?
Intuitively, if we hedge delta and rebalance that delta hedge periodically, we are effectively hedging a bit of gamma with each rebalance. I feel that this would depend on the rebalancing limits and ...
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Contribution to Drawdown?
I am trying to learn about the contribution to drawdown as a risk measure. While it is common to look at volatility and VaR/CVaR contributions, I have never seen the contribution of each portfolio or ...
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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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Calculating alpha and its meaning
According to wikipedia, CAPM model is described by:
$E(R_{i})=R_{f}+\beta _{{i}}(E(R_{m})-R_{f})$
And according to website such as http://investexcel.net/jensens-alpha-excel/,
$\alpha = E(R_{i}) - ...
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Calculating tangency portfolio weights with the given information? (2risky +riskfree asset)
We have 2 risky and 1 risk-free asset.
E1 = 4%, STD1=10%
E2 = 5.5%, STD2 = 20%
rf=1.5%
The covariance matrix and it's inverse are given:
...
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Calculate fund size given risk limit?
I was listening to a podcast and this guy mentioned the following (literally):
The entire group is probably running 800 million at risk. So I'm going
to say like call that like a, if you think of ...
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Why do better-performing index funds not get a higher weight? [closed]
Most financial advisors recommend to inexperienced investors to put a large part of their investment in broad index funds (e.g. SPY). They will usually reiterate that most actively managed funds ...
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Does it make sense to have an allocation to short term fixed income and a leveraged or unfunded position?
This may sound like a basic question but I have seen many large institutional investors have this as part of their asset allocation and am wondering why they do this?
Does it make sense to have a ...
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Quick simple way to aggregate sharpe ratio for a portfolio with derivatives
Suppose I have a portfolio with a mix of long short equity, some bonds, as well as derivatives such as options. Is there a quick way to aggregate sharpe ratio on a portfolio level? I would imagine ...
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Confusion about the proof of Fundamental Law of Active Management in Grinold & Kahn (2000)
I'm reading Grinold & Kahn (2000) for the proof of the Fundamental Law of Active Management.
I can't understand formula (6A.20) on page 168, which says:
Finally, by assuming that all the signals ...
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How to determine what's driving the VaR?
I am given the following data:
Historical (260 days) P&L vector of a portfolio.
Specific P&L's for each investment in the portfolio, for the 10 days with the lowest P&L.
The question ...
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mean-variance optimization === max sharpe ratio portfolio?
Noobie here. I just wanna ask a simple question:
in the context of portfolio optimization, is Mean-Variance optimization the same as the max sharpe ratio portfolio?
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Industry best practice for minimizing tracking error [closed]
Lets say I have an alpha generating model that forecasts expected returns for SP500 stocks. I formulate a portfolio with 100 stocks having the highest expected return. What is the simplest way of ...
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is it possible to get minimum variance line having only covariance matrix?
Hey I have covariance matrix:
$$C=\begin{pmatrix} 0,01 & 0.01 & 0\\ \\ 0.01 & 0,02 & -0.01 \\ \\ 0 & -0.01 & 0,03 \end{pmatrix}$$
So the variance of porfolio is:
$$\...
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Fama French Model; 5 Factors yield higher alpha than 3 Factors [closed]
I am currently running some Fama French regressions for a number of specified portfolios, consisting of US stocks (for a university level course). The regressions are conducted in R, using the lm ...
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How to deal with benchmark timing in quantitative portfolio management?
In Grinold & Kahn (2000), the authors emphasized the separation of stock selection and benchmark timing in active portfolio management. So if we avoid benchmark timing, the optimal portfolio's ...
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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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Deep Reinforcement Learning in Quant Finance?
I've been struggling to find engaging papers on the application of deep reinforcement learning in quantitative risk analysis, portfolio management, algorithmic trading and/or options pricing. What are ...
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Testing the significance of active trading strategies other than stocks
In active asset management industry, a common approach to Test whether my Strategy Provides significant alpha is to Regress Portfolio Returns on Fama French 3 (or 5 factors) and check whether the ...
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In Mean-Variance Analysis, why not the efficient frontier being pushed to the left near the axis?
I took some classes in portfolio theory, and learnt the Markowitz Mean-Variance Analysis.
If only two risky assets, the efficient frontier would be a hyperbola passing through the two points; now if ...
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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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Why are monthly active returns averaged? Should they not be multiplied?
I'm looking at this video: https://www.youtube.com/watch?v=fZmuJ2A9TC8 @4:43 but the issue is more general.
Here the speaker is taking monthly active returns and averaging them
...
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Determine if stocks are hurt by rates or recession fear
Looking at a portfolio of growth stocks which traded at high multiples until end of last year.
Stocks have been underperforming (no surprise there) but I'm trying to find ways to determine, ...
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