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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Compare returns or standardized returns for different investment strategies?

I simulate monthly stock market returns, and compute the returns of two different investment strategies. I then have the following simulated returns \begin{align} r_1^{(1)},r_2^{(1)},\dots,r_n^{(1)} \...
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103 views

How to calculate the net return of each “partner” at different times?

Let's suppose I am starting to manage some money. The money is invested in ETFs, particular de VOO. Let's suppose I have partner one with 1,000 USD, and with this, I can buy 10 shares of VOO at 100 ...
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33 views

Cumulative returns are more correlated than non-cumulative

I was just comparing two daily returns series and noted that the correlation between them is a lot higher if they are cumulated (about .95 for cumulative returns, vs .15 for non-cumulative). I feel ...
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58 views

liquidity of a portfolio of options

In the asset management industry, many reports contain liquidity metrics such as the no. of days to liquidate 95% of a position, based on a certain participation rate. If that position is a stock or a ...
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Calculate turnover for portfolio

I am trying to calculate the turnover for a portfolio strategy. First I generate some random data and assign it dates: ...
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208 views

Why use reinforcement learning for portfolio optimization with historical market data?

One of the main advantages of (deep) reinforcement learning approaches (compared to more widely known supervised deep learning approaches) is the fact that it enables us to automatically take ...
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cvxpy portfolio optimization with risk budgeting

I'm trying to do some portfolio construction in cvxpy in Python: ...
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399 views

Fixed Income Portfolio Optimization

I'm trying to solve for a maximum sharpe ratio portfolio in the fixed income space. To do so, i use CVXPY in python. I use this Paper as reference. This is my "setup": ...
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Optimizing a portfolio under known risk

I want to maximize the return of a $n$-asset portfolio under known risk: $$\max_{\{w \in \mathbb{R}^{n}|w_{1}+...+w_{n}=1\}} \; \mathbb{E}\left[\sum_{i=1}^{n}w_{i}R_{i}\right]$$ under the constraint $$...
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Studies on performance comparison of portfolio theories?

Are there any papers doing as broad as possible comparison of various portfolio theories performance? For example, compare specific theories: MPT Risk parity Black-Litterman etc or compare models: ...
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Testing Valuation, Size and Momentum (proprietary factors) from 1988-2013: No evidence of driving cross-sectional returns

I am currently testing whether three proprietary factors - Valuation, Size and Momentum - explain cross-sectional returns. A sample of 3000 securities was tested using Fama-MacBeth two-pass ...
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How do i find the covariance between two portfolios?

I know that the formula for covariance is But this is for two securities. How do I find the covariance between two portfolios? more specifically between the global minimum variance (GMV) and the mean-...
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Assessing transaction costs of different portfolio strategies

I am trying to evaluate different dynamic allocation strategies based on the same stocks' universe according to their transaction costs. I was thinking to simply compute it as some sort of turnover ...
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What’s the best Backtest Software/method? [closed]

I have a CSV which looks like this. Ticker | Buy Date | Sell date AAPL | 2018-01-03 | 2019-03-30 TSLA | 2019-03-01| 2019-04-05 What’s the best way to backtest this CSV performance given that ...
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Possible application of Polya's Urn on Portfolio's Investments?

I wanted to find some more information of this topic, but I found very little. I might be interested in optimizing a stock investment portfolio. Maybe I could use beta or some other common risk ...
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35 views

How do I calculate FX forward hedge ratio?

Suppose I have a USD holding of 1,000,000 in my portfolio and I want to convert it into EUR in a month's time. I enter into a FX forward contract of the same amount USD 1,000,000, meaning that I have ...
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How does negative performance of a portfolio constituent affect its weight?

This is an easy question, I hope. Suppose we have a swap A with a long position, which, originally, has a weight of 30%. Over time, it has a positive performance of 3%, meaning we have a multiplier ...
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44 views

relationship between the expected rate of return and the value measured by the beta factor

Assume that only two companies are listed on an effective capital market: companies A and company B. Capitalization (market value of all shares) of both companies is the same. Expected rate of return ...
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119 views

portfolio optimization with uncertain returns

What is the usual method of dealing with many uncertain mean returns in portfolio optimization? For example say you have a 3 asset portfolio with assets A, B and C. All the correlations and variances ...
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60 views

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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1answer
47 views

Which one is the optimal risky portfolio in the efficiency frontier in the absense of a risk free asset?

I know that the tangency point between the CAL line (drawn from risk-free asset's return) and the efficiency frontier is the optimal risky portfolio. But what if there is no risk free asset? Can I ...
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85 views

Hedge backtesting: ex-ante Beta vs observed Beta (is this even possible?)

A global equity portfolio has for objective to outperform a benchmark (MSCI World). I hedge the sensitivity of the portfolio to MSCI World (the beta) so that only the alpha remains unhedged. The ex-...
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61 views

Full Copula View using Meucci's Full Flexible View

I'm currently setting up an "Investment Framework" that should allow the following steps: Investment Committee (IC) has to decide on probabilities for 4 different market states. I have historical ...
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1answer
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Why use square root of companies market cap in the WLS matrix

When doing a regression based performance attribution I see that people normally use WLS. So that both our independent and dependent variables are multiplied by our WLS matrix, which is a diagonal ...
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116 views

Active vol strategy within a portfolio

Suppose I'd like to have 10 % of my portfolio allocated to "long volatility" by rolling straddles . Obviously going all in on one trade implies significant risk of losing all the money. Does anyone ...
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72 views

R - Portfolio construction based on own calculations, with rebalancing of components

I have used random forest in R to get probabilities for stocks being in a certain class. With those probabilities i would like to construct portfolios containing the 5 stocks with the highest ...
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Insured Portfolio via call + cash: how much cash?

I am unsure about the quantities to keep in the risky asset, S, and the non-risky asset, M, when constructing an insured portfolio via Call + Cash (rather than Stock + Put). My understanding so far is ...
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Hedging Covid-19 and other low probability high loss risks

Covid-19 and similar risks are low probability, high loss events. Does it make sense to utilize options to provide hedges for such events? For example, should one utilize long positions in deep out-...
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42 views

Do the wallet weights with the minimum variance need to be nonzero?

I wonder if we have n risky assets, does the portfolio with the minimum variance always have non-zero weights or can any weight be 0?
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63 views

Difference between Risk Premia, Alternative Risk Premia and Factor Investing?

I'm reading about this three concepts but still can't see the difference between the three of them, can someone please explain the main difference between three of them ? Thanks
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Why the weight vector of 'global minimum variance' the 'eigenvector' with the minimum eigenvalue?

Question Why is it the case that the weight vector of the global minimum variance portfolio the eigenvector of the covariance matrix with the smallest eigenvalue? Question with more details I ...
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28 views

Calculating portfolio sensitivity to macroeconomic shocks

I am interested in modeling the sensitivity of an equity portfolio's value to hypothetical shocks to the real economy, captured by real GDP and inflation. I would want to see what the corresponding ...
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1answer
48 views

Time varying weights in a portfolio

As I have seen in my portfolio theory class, we define the weights of some assets and quantify the risk and return of the whole portfolio. In this setup, the weights do not change in time. What if the ...
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27 views

feasible set if short selling of risk free asset is not allowed

I have 3 risky assets and one risk-free asset. From them I have to determine what the set of portfolios achievable looks like if there is short selling of risk-free asset is not allowed. What does ...
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324 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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37 views

Statistical significance of mean returns between two portfolios

Suppose I have developed two versions ($A$ and $B$) of a factor model for ranking stocks. Both versions of the model use the same scoring system: stocks are percentile ranked within a given universe ...
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38 views

CAPM Model, is this exercise done correctly?

Hey i need to know if the task is done correctly, please help :) Standard deviation of the rate of return on the market portfolio is equal to $\sigma_{MP}=1,5\%=\frac{15}{1000}$. I have portoflio ...
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2k views

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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34 views

Advantage of copula over estimation based on historical data

It seems to me hard to intuitively understand the concept of copulas and their advantages. For example, why would it be better to estimate value at risk of portfolio by modelling its asset returns ...
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42 views

Hedge ratio with future contract [closed]

I want to buy some stocks and short future contract instead. I wonder whether I can calculate the hedge ratio?
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1answer
85 views

Hedging with interest rate derivatives

This might be a stupid or basic concept for some of you, I'm new to the concept of hedging with interest rate derivatives, I understand how to hedge an equity portfolio but i'm struggling with the ...
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1answer
92 views

How to model/price the risk of Covid-19 and other pandemics

How would you model and price the risk of Covid-19 pandemic? These large cost low probability events with very little history seems to pose a particular challenge when quantitatively modeling and ...
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1answer
165 views

Stop-Loss strategies

Does anyone know some bibliography about the problems or limitations of using Stop-Loss strategies in a portfolio? Let me explain better: for example you can have a portfolio of 30 stocks from ...
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28 views

Time and asset weighted rate of return of a portfolio

If I have a portfolio with 3 initial assets on day 1 (say, stock 1 with beginning market value of \$100, stock 2 \$150 and stock 3 \$175) and after 10 days the stock 2 is sold for \$200, how can I ...
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Using monthly CRSP EWRET to build equally weighted portfolios based on market equity and book to value ( SAS)?

I was wondering if it is possible to download the EWRET variable from Wharton in order to construct equally-weighted portfolios and rebalance every June? I have seen a few fancy codes for this ...
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Question about financial mathematics, meeting a claim

I have a question regarding exercise 12, chapter 1 of "A course in Financial Calculus" by Alison Etheridge. It is as follows: "Suppose that the value of a certain stock at time $T$ is a random ...
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99 views

FX Swap P&L question

I am currently trying to compute the P&L of a FX swap and to understand it's implications. Let's say when we sell 1M EUR spot eur/usd at 1.08 and at the same time buy a one month month forward ...
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501 views

Suppose that we are wrong about the relevant class of distributions for financial economics and econometrics. Now what?

I read a very interesting paper by Harris (2017) where he points out some interesting link between market microstructure and the distribution of returns on equity. You can make a good case that the ...
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29 views

Performance attribution, what type regression model to use

When carrying out a regression based performance attribution should you use OLS or WLS? I always thought that because of the heteroskedacity in the residuals that you should use WLS but is that ...
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Fixed income management problem

First of all, hope everyone is safe and sound. I would like to describe the following scenario and my thinking Welcome any comments on my thought process!!! 3 swaps outstanding Pay fixed 100mln, ...

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