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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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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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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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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Valuation of the minimum guaranteed return that (some) pension funds provide - how would you do it?
Let's say a pension fund guarantees an annual return of at least 5% to their customers/investors, such that the investors face a payoff like the one of a call option (no downside). For this guarantee ...
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Calculation of Market portfolio from efficient frontier
I have a specific Portfolio frontier. Can someone provides me with details about how can I calculate the market portfolio from the efficient frontier? I know that I have to draw the tangent line from ...
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Index to track my portfolio of all ETFs
I have the following portfolio of all ETFs:
I am attempting to apply Black Litterman and on the step of calculating market weights. I have the following questions:
How can I define what index to use ...
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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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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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Calculating portfolio weights for Black-Litterman model
I am attempting to construct a portfolio using the step by step Black-Litterman model. My idea is to have a portfolio of, say 10 ETF's (equity based) in one sector and then add some uncorrelated asset ...
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How is the total return of an alpha strategy being calculated during backtesting?
I am using a quant simulation platform and I have chosen a formulaic alpha to be used. Now the platform is backtesting and displaying the total return of the alpha strategy over 12 years. The trading ...
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Build a portfolio with $\beta=1$ and minimize $\sigma^2$ using CAPM
Suppose there are two stocks A and B:
expected returns are $E[R_A]=0.1$, $E[R_B]=0.15$;
standard deviations are $\sigma_A=0.1$, $\sigma_A=0.2$;
correlation is $corr(A,B)=0.6$;
their betas to some ...
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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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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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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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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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calculating sharpe and sortino ratio given monthly returns [closed]
suppose I have (fictitious) monthly returns:
...
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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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