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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165 views

Unwinding a Portfolio

I have a portfolio ${\mathbf P}$ made up of positions $n_i$ in each of $N$ securities, which I'm assuming are jointly normally distributed with means $x_i$, and covariance matrix ${\mathbf M}$. ...
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31 views

Higher risk = high reward?

Some theory (in my understanding) suggests that price is the expectation of future cash flows discounted by expected return: $$p_t=\frac{\mathbb{E}^m_t[c_{t+1}+p_{t+1}]}{1+\mathbb{E}_t^m[r_t]}$$ where ...
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1answer
78 views

Criteria for excluding an Asset Class from a Strategic Asset Allocation

While historically the return, volatility and correlation characteristics justified the inclusion of Sovereign Bonds (US Treasuries, European Central Bank Debt, etc) in Strategic Asset Allocation ...
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28 views

Correlation of two strategy's returns, is it a good standard to select strategies?

Let say I have two strategies, A and B. Historically, when the portfolio value of strategy A moves up, then that of portfolio B moves up. Same in the down case. Then, we can say both strategies are ...
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2answers
198 views

How to compare mean-variance-skewness-kurtosis portfolios obtained by expected utility maximization?

Suppose I have some portfolios which are the result of maximizing the expected utility of different approximations of a utility function, how do you test these portfolio's out-of-sample and how do you ...
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2answers
142 views

calculating sharpe and sortino ratio given monthly returns [closed]

suppose I have (fictitious) monthly returns: ...
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2answers
128 views

PCA on the stocks

I have N stocks, and a covariance matrix that indicates the covariance of these N random variables. Now, if I run PCA on the covariance matrix, what can you tell about the principle component?
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1answer
96 views

How do you simulate returns for a portfolio when you have Lumpsum + Monthly investments (SIP) in place?

I'm trying to simulate portfolio returns using Norm.inv function in excel. Inputs to the formula: Prob= Rand, Std dev= Historical, Mean= 5 year historical average. Its easy to do this when you're ...
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47 views

How To Create Daily Leverage?

After doing some analysis on daily leveraged funds one of the biggest risk factors I find is regulatory risk. My goal is to have a risk parity portfolio with daily leveraged funds but if some of these ...
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78 views

How to set a portfolio turnover ratio threshold according to volatility?

With the various crises affecting the financial markets, here a pandemic, this ratio skyrockets almost every time, which limits its interpretability. We know that the ratio increased during the ...
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1answer
171 views

Does mean variance optimization work in real life? If so, why are defined benefit pension funds so underfunded?

I understand the theoretical underpinnings of mean variance optimization and modern portfolio theory. But does the application of modern portfolio theory work in real life? If so, why are all the ...
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81 views

Momentum strategy with Entropy Pooling

i'm currently trying to implement a ranking based on momentum indicators into my Entropy Pooling approach. Basically, the idea behind Entropy Pooling is to incorporate views into a reference model (...
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1answer
230 views

Derivation of mean-variance portfolio weights as closed-form analytical solution from Lagrangean equations

I am trying to find a closed form solution for the constrained MVO problem below. $\max_w w'\mu - \frac{\lambda}{2}w'\Sigma w $ s.t. $w'$1 = 1 The Lagrange for the objective is $L(w, \gamma) = w'\mu ...
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36 views

Immunization of Portfolio of Bonds

I have a question regarding immunization portfolios that are continuously compounded. Suppose we have the following three bonds: Bond 1: one year zero coupon with principal of $100 Bond 2: two year ...
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112 views

Replicating portfolio

I have a doubt about the replicating portfolio methodology. Example - Consider an European Call with $K=21$ and underlying with current price $S_0=20$. We assume that, at the maturity, the underlying ...
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47 views

Proof of existence of one only martingale measure

I know that: Hypothesis 1 (Girsanov Theorem) Let $\theta=\begin{Bmatrix} \theta_t \end{Bmatrix}_{t\in [0,T]}$ be a square-integrable and $\Im_t$-adapted process such that $\mathbb{E}[e^{\frac{1}{2}\...
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1answer
87 views

Correlation sensitivity in multivariate $t$-copula for portfolio VaR of electricity futures using Kendall's tau-$b$ correlation matrix

My t-copula model captures the daily dollar returns of a portfolio of approximately 400 assets. I am curious if there's a generally accepted way to quantify the sensitivity of portfolio movements with ...
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1answer
77 views

Strategic Asset Allocation and Multi-Asset Class Option Based Tail Risk Hedging

If a Strategic Asset Allocation is defined as an asset allocation to weather all investment environments and one which should be employed in the absence of any market views, it would appear that the ...
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2answers
154 views

Portfolio selection with no risk-free asset

Can someone explain why some papers on portfolio construction assume that there is no risk-free asset? For example, this paper: Machine Learning and Portfolio Optimization. What could be the reason(s) ...
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3answers
477 views

Asset Allocation with near zero rates

With central banks pegging interest rates to near zero rates, an argument could be made that the future distribution of interest rates and bond returns are not normally distributed. How has modern ...
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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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4answers
482 views

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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212 views

Portfolio Optimization via Entropy Pooling in R (Meucci)

does anybody have experience with the Entropy Pooling Approach by Meucci in R? I am currently trying to do a portfolio optimization with Stocks & Bonds, where a 101 example would be very helpful. ...
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44 views

internal rate of return ((M/X)IRR ?) of a fund

I have the following data for a fund. The contributions come from the LPs (i.e., the investors invest more in the fund, or withdraw money from the fund), MV stands for market value. The timing is not ...
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1answer
40 views

Hedge Active Duration by Issue Currency or Country of Risk

For example, lets say I own a bond issued by a company in Mexico that's denominated in USD and I want to hedge my duration exposure. I obviously need to hedge duration to the US yield curve. Do I ...
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357 views

Portfolio Performance Attribution Using Carino Smoothing

I'm trying to conduct portfolio performance attribution using Carino smoothing, but it seems that the active returns do not match and I don't know why. Here is the example I use: \begin{array} {|r|r|r|...
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1answer
238 views

Calculate the VaR and ES for a confidence level of 99.5% [closed]

Question: The change in the value of a portfolio in three months is normally distributed with a mean of $500,000$ and a standard deviation of $3$ million. Calculate the VaR and ES for a confidence ...
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1answer
53 views

How to deal with missing stock returns?

If I want to calculate the Covariance between two stocks but there are missing days in both, how can I deal with missing data? I want to use Pairwise deletion and only use the days of which both ...
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3answers
228 views

Risk free rate's role in CAPM

I don't understand what is the mathematical and financial role of risk free rate in the CAPM formula . Why do we need to add 10 years treasury yield to the formula then substract it again from 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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0answers
47 views

Using Timeseries DB for Tracking Asset Performance over time

I am building a system that allows users to purchase digital assets, and i would like to know the asset's performance of individual users. A user may purchase an asset multiple time in a single day, ...
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46 views

What is the formula for the global minimum variance portfolio with positive weights?

I know how to algebraically solve for the weights when short selling is allowed but I can’t seem to find the formula for when it’s strictly positive an the weights sum to 1 anywhere online.
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2answers
96 views

What do large weights above 1 in a portfolio represent?

If I have a portfolio consisting of weights -12,11,3,-2,5,-5, I know that negative weights correspond to shorting but what do these large weights represent? I thought the weights are the proportion of ...
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813 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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1answer
580 views

How to calculate a position's contribution to its portfolio's tracking error?

Say we have assets X (with weight $w_a$) and Y (with weight $w_y$) in a portfolio. X and B returns are correlated: $Cov(R_x, R_y)\neq 0$. The portfolio's tracking error is: $std(R_p - R_b) = std((w_x*(...
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1answer
116 views

How to combine different strategies in a backtest (and IRL)

I am trying to combine long and short strategies into an L/S strategy in my backtesting program. The way I have my backtester set up is it takes a signals object (...
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0answers
30 views

Can someone explain how the evaluation and execution through to post-acquisition portfolio management?

I am looking into Private Equity. As the topic says. I'm trying to understand the process behind the evaluation and execution through to post (and pre? if there is some) acquisition portfolio ...
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0answers
46 views

Question on the details of certain parameters in Sharpe Ratio [closed]

I'm puzzled about certain parameters in calculating the annualized Sharpe Ratio using monthly return data. Average excess return: Does this mean the arithmetic average of all the monthly excess ...
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0answers
67 views

CPPI Returns for different floors

I am new to the topic of Constant Proportion Portfolio Insurance, and have implemented it in R for the first time. Now if I calculate the cumulative return of the ...
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2answers
59 views

Choice of factor model based on correlation

I have a portfolio of assets. Each assets have been discretionally (based on investment manager experience) related to economic factors like (like exchange rate inflation spread etc). Now for each ...
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1answer
155 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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110 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 ...
2
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1answer
68 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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50 views

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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1answer
276 views

Optimizing a portfolio whose risk is target expected shortfall

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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1answer
236 views

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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1answer
111 views

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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65 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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0answers
99 views

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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1answer
62 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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