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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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Black litterman's formula
Hi just curious where can I find the proofs of Black litterman's first term and second term formula? I don't quite know how exactly they derive the entire formula using inverses of matrix.
Thanks!
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Which riskfree rate to use for Maximum Sharpe Ratio Portfolio?
I am conducting out of sample backtests of the MV framework. But how exactly do I derive the Maximum Sharpe Ratio portfolio for this? The standard forumula of the Sharpe Ratio is given by:
$$\frac{(...
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Which returns to use for portfolio optimiaztion?
On the base of which returns do I have to derive optimal portfolio weights of an investment strategy? More specifically, do I have to use the excess returns or just the normal returns of the ...
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ESG Style Analysis
Hi all and thank you in advance.
Do you think that implementing a style analysis on ESG equity portfolios is feasible?
When I mean style analysis I refer to the seminal paper of Sharpe (1992) but I ...
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Using Implied Volatility for Portfolio Optimization
Hello I am interested in portfolio optimization . Previously I when I have done portfolio optimization I would take the historical returns of a stock and use them to perform a mean variance ...
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Markowitz portfolio in reality
I am in academia and begin to work on topics including portfolio optimization.
I just read lots of paper discussing different extensions to the Markowitz approach, given different (possibly ...
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Portfolio construction with volume based bars
In the book Efficiently Inefficient, Lasse Pedersen interviews Myron Scholes:
LHP: Why do spreads tend to widen during some periods of stress?
MS: Well, capital becomes more scarce, both physical ...
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What are Market Makers hedging?
I know that the target of the market makers is to provide liquidity to the markets.
Right now I'm working as a developer in a quite large project of F.I. I know that they are providing liquidity for ...
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What is momentum factor and how is it calculated based on three parameters?
I have 7 year prices of a group of stocks and index prices for the same time period now I want to calculate momentum factor, depending on the three relevant parameters (rebalancing frequency, rolling ...
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Mean Semivariance Optimization VS PMPT
Mean Semivariance optimization defines semivariance, variance only below the benchmark/required rate of return, as:
$(1/T).\sum_{t=1}^{T} [Min(R_{it}-B,0)]^2$
where $B$ is the benchmark rate, $R_{i}$...
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Calculating bond prices from constant maturity yield
Goal: turn a constant maturity yield time series into bond prices.
The federal reserve has great data series including this one. This is a time series of historical treasury bond yields and I need to ...
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Machine learning for portfolio optimization
What algorithms from machine learning, supervised learning or unsupervised learning have been recently used for asset allocation models as alternatives to the Markowitz mean-variance optimization ...
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Portfolio and Risk Management: Total Return Index vs Price Index
For portfolio construction and risk management purposes, when one should use Total Return based Index instead of Price Index?
I am looking for pros and cons of using either Total Return and/or Price ...
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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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Is there any way to compare portfolios created using sharpe optimization model?
I created different portfolios using sharpe portfolio optimization model and I want to know is there any way to compare those portfolios before actually investing in them?
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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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Hedging a trade for PCA component neutrality
Suppose I am given a set of financial instruments, e.g. {1Y, 2Y, ..., 30Y} interest rate swaps or {Barclays, Lloyds, .. } FTSE100 companies. It doesn't matter which so let's go with IRS.
I have ...
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Benefit of better predicting the variance of portfolio daily returns while optimizing a portfolio?
Question
Is there a benefit of having lower gap between 'in-sample' variance of portfolio daily returns and 'out-of-sample' variance of portfolio daily returns? (= better estimates the out-of-sample ...
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Annualizing Sharpe Ratio using small time frames
I have coded a strategy that works 5m time frame. I know you multiply it by 252 but i am using 5m or sometimes 1h time frame. Which number do i have to chose to multiply? There are 72576 five minutes ...
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Efficient frontier using Post Modern Portfolio theory
I have been trying to find a way to create the efficient frontier using Post Modern Portfolio Theory (PMPT), but have failed to come across a source that mentions how to do so. I know PMPT uses ...
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Portfolio rebalancing question
I found this question and am not too sure how to answer it. How would you determine the minimum cash deposit,m, needed to move a portfolio back to it's target weights, given only the following:
...
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What duration of treasuries to add to portfolio of stocks
If I have a portfolio of stocks and want to add treasuries would it be better to add very long duration treasuries or a levered position in shorter duration treasuries? Why?
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