# 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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### 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. ...
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1 vote
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### 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 ...
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### 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
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### 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 - ...
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### 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 ...
1 vote
162 views

### 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 ...
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### 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 ...
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239 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
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### 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 ...
1 vote
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### 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 ...
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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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### 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 ...
99 views

### 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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### 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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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 ...
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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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1 vote
49 views

### 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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1 vote
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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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239 views

### 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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### 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 ...
516 views

### 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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### 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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### 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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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_{...