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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812 views

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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136 views

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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79 views

What are some advanced portfolio rebalancing strategies?

Want to write some portfolio rebalancing code but have found only simple portfolio rebalancer strategies like calendar and threshold. I want to rebalance a portfolio with different asset groups (EQ, ...
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31 views

Calculation of Long-Short-Portfolio returns for different holding periods

I have monthly stock returns I want to invest in according to my trading signals. Now I want to figure out the optimal holding period of the long-short-positions. (The same time for both positions). I ...
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1answer
53 views

structural model - exposure estimation

The following example is from the book Active Portfolio Management by Grinold and Kahn. Suppose we have the factor returns and want to estimate the exposures/factor loadings. Say the factor returns ...
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1answer
53 views

Black-Litterman Weights Don't Change for Assets Without Views

I am using Idzorek 2002 (https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2006/Idzorek_onBL.pdf) as a reference to implement the BL model in R. I have specified the model in its standard form, ...
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30 views

Log Returns or Simple Returns for Portfolio Performance Analysis

Simple question but one thats stumping me slightly. I am doing a study analysing historical portfolio performance related to portfolios constructed with separate factors in mind. I realise simple ...
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1answer
251 views

Best books on portfolio construction?

I am a master of finance student and although I understand the basics and the theory of portfolio construction I am still struggling when it comes to the practical side of things, i.e. building a real-...
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47 views

Volatility targeting / sizing for option strategies

I am trying to work out how to properly size an option strategy to a given target volatility. Assuming I have \$100 capital and I would like to have a strategy's long-run daily volatility to be \$1 (e....
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35 views

Factor Models vs. Risk-Adjusted Performance Measures

I am building a study focusing on portfolio returns relative to a number of portfolios constructed using various ESG screening techniques. My intention is to measure and compare the performance of '...
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36 views

Portfolio variance over time vs. Portfolio variance from mix of two assets

Here are two facts about finance: 1. If stock returns are not independent, for example tomorrow's return equals today's return, then the variance over two days will be less than the variance of 1day*2....
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628 views

PortfolioAnalytics R package - Error with the function “create.EfficientFrontier”

Issue The function create.EfficientFrontier from the PortfolioAnalytics package is outputting an error message that reads: <...
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45 views

Correct way of making sharpe optimized portfolio?

I have monthly returns of about 977 securities of past 10 years. If I keep the returns as it is i.e. I do not multiply by 100 and keep the returns as 0.1, 0.2 , -0.3, 1.2 then I get different results ...
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117 views

Daily weights and returns of portfolio that rebalances monthly

I am to replicate the Betting against beta strategy by Pedersen and Frazzini. We use daily returns of the stocks and construct two portfolios based on their ranked betas. Weights is also based on the ...
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57 views

Consensus expected excess return from Active Portfolio Management

In the book Active Portfolio Management, when discussing components of expected return (page 92 in edition 2), the authors mention that the consensus expected excess return $\beta_n\mu_B$ is the ...
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72 views

OLPS in real conditions

The Online Portfolio Selection problem has been extensively researched over the years, and various models have been implemented in open-source projects on GitHub. However the theoretical frameworks of ...
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48 views

How to model when to buy and sell a stock? [closed]

Given a set of historical data and volatility of price in each day, how is it possible to determine a price to purchase a stock at each day? For example, I want to find a price like $125 and receive a ...
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32 views

CAPM derivation - active portfolio management

In the book Active Portfolio Management by Grinold and Kahn, the author presents the derivation of CAPM. I am rather confused by the notation of $\beta$ in this derivation and hope to seek some help. ...
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1answer
151 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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54 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 ...
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1answer
101 views

replicating self-financing portfolio for risk neutral measure

Let the price process $S_{t}, 0 \leq t \leq T$, be a diffusion, and savings account be $\beta_{t}$ such that the Equivalent Martingale Measure $Q$ exists. Let $C_{T}=g\left(X_{T}\right)$ be the claim ...
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1answer
78 views

Portfolio returns, volatility and weights of capital

I would just like to check if I've done these questions right, I feel like I might have used the complete wrong methods to get my answers. I've been given information on 3 stocks: I've filled in the ...
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1answer
241 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 ...
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16 views

Capital Charge or Capital add on for Concentration risk using Model-free measure standardised HHI (Herfindahl Hirschman Index)

I am looking to calculate the Capital Charge or Capital Add on for Concentration risk using standardised approach using HHI Below is the HHI index calculation What is procedure to calculate the ...
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2answers
786 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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55 views

Sharpe ratio differs from Tradingview

I tried to backtest a simple strategy on TradingView, it made 6 trades with these results: Now I want to calculate Sharpe ratio using definition provided by TradingView. So, my daily returns(...
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19 views

Interpretation of holding lower beta assets leveraged to a beta of one and short high beta de-leveraged to a beta of one

I was reading the famous paper "Betting against Beta" by Frazzini et al. They created BAB factor in which a portfolio is created by holding low beta assets, leveraged to a beta of one" ...
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21 views

Adjust the CAPM/CML model for VIX index

Adjust CML model for VIX factor I’m trying to incorporate the VIX index into my efficient frontier model. One way of doing this that I thought about was to extend the model to include investor ...
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1answer
310 views

Fama-French vs. Arbitrage Pricing Theory of Ross

Is there a specific reason for why Fama-French papers on CAPM extensions do not refer to APT of Ross? In textbooks, APT is always an extension of CAPM and the foundation of extending the set of risk ...
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3answers
512 views

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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2answers
147 views

How to evaluate Asset Allocation skill?

There have been studies that show that Asset Allocation can explain 90% of the variance of returns on a portfolio. If true and Asset Allocation is the primary driver of return risk, how can you ...
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43 views

How do I have to calculate the risk free rate of my two asset portfolio?

Good afternoon everyone! I have a question regarding the risk free rate of my two asset portfolio. For my course, we have to create a two asset portfolio with the time frame of 2015-2020 with monthly ...
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55 views

Do options have diversification benefit?

Imagine the universe where we have one investable volatile asset but with an available liquid options chain for it. The question: can a portfolio consisted of this asset, and some options have any ...
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10k views

What to use as portfolio diversification measure?

Suppose that we have a portfolio of $n$ assets. A perfectly diversified portfolio is one in which each asset has equal weights, i.e. each asset has weight $\frac{1}{n}$. Of course this is usually not ...
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59 views

How to calculate if a portfolio has diversification

I writing a paper and wanted to know the best way, method or theory to know if a portfolio is diversified. To give you some context, I wanted to know if whether putting Bitcoin into a portfolio with ...
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5answers
275 views

What assets other than bonds are risk free?

I saw a question the other day that said Assume you have only two assets to build a portfolio. Name and explain three scenarios under which a completely risk-free portfolio can be formed? I ...
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25 views

Multiple independent variables (returns) on common dependent variables (Fama-French risk factors): Efficiency and data structure in Python

As a common topic in factor investing, I wish to implement the well-known Fama-French regressions on several stocks (+2000 IDs). In a deep sense, factor regressions tell how the right hand (returns) ...
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1answer
110 views

Monthly rebalancing portfolio of daily returns

Tried to ask this already, but I am still a bit unsure on how to proceed. What I wonder is how to handle the returns and weights of the stocks in a portfolio after rebalancing monthly, so within the ...
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21 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 ...
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32 views

Best bibliography on the classic Merton portfolio problem

I am writing a small section on my thesis about the classic Merton portfolio problem. I was wondering what are the best books on the subject. I am looking for something from the beginner to the ...
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80 views

From annualized Sharpe Ratio to number of daily losses

I have seen a few statements that link a particular annualised Sharpe Ratio to the likely frequency of 'loss day' across a given period: e.g. "A annualised Sharpe Ratio of X, implies the ...
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1answer
92 views

RIsk-retun of 2-asset portfolio with perfect negative correlation

Risk-retun of 2-asset portfolio with perfect negative correlation $(\rho=-1)$ is a straight line with slope of $\frac{|\mu_2 - \mu_1|}{\sigma_2+\sigma_1}$ since $\sigma_P=|\omega_1\sigma_1 -\omega_2\...
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83 views

global minimum variance portfolio vs all-bond portfolio

I'm leaning portfilio theory and have got some questions. global minimum variance portfolio is defined as the leftmost point on the efficient frontier which suggest it is a all-bond portfolio if risk ...
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1answer
37 views

Do equity mutual funds typically have industry-level diversification constraints? [closed]

For instance, are there limits to how concentrated a portfolio in terms of industry allocation? If so, where can I find such information about the constraints each fund has?
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4answers
161 views

Cant replicate minimum variance portfolio variance by simulating many random portfolios in R

I have computed the theoretical minimum variance portfolio using the 30 stocks in the Dow. The formula used is: $$\underset{N\times 1}{\omega_{mvp}}=\frac{\lambda}{2}\cdot \Sigma^{-1}\iota=\frac{\...
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0answers
36 views

Controlling for factors that influence minimum variance optimization

I am trying to compare the performance of two minimum variance optimization (mvpo) methods applied on stocks Hierarchical risk parity (HRP) vs the analytical global minimum variance formula. I feel ...
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1answer
224 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 ...
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2answers
149 views

Portfolio rebalancing to optimal weights including transaction costs and without cash component

Consider a portfolio with 4 assets (A, B, C, D) with prices, quantities, current weights, and target weights as follows: I want to rebalance the portfolio from the current weights to the target ...
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1answer
106 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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16 views

Portfolio return attribution by styles

Say I have a time series of portfolio returns (mutual fund xyz), time series for the benchmark, and time series for MSCI style indices (value, momentum, quality, low vol). Note: style indices are long ...

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