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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1answer
665 views

Long short equity hedge fund question

I have a question related to long short equity hedge funds. 1) What are some of the metrics used to perform risk analysis of long short equity funds on fund level? Volatility (standard deviation), ...
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169 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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1answer
273 views

Creating a portfolio in R : good practices

I am quite new to quantfin, but wanting to learn. I've searched for the answer (google and stackex), but haven't found anything satisfactory (but I might not be asking the correct questions...) The ...
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1answer
93 views

Mathematical definition of a hedge?

For two given portfolios/trading strategies I want to know what criteria need to fulfilled in order to call the one portfolio a hedge to the other. In other words; what is the mathematical definition ...
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123 views

state of the art portfolio optimization techniques

In my recent exploration, I came across this paper on robust portfolio optimization that seems to work well with out of sample situations: Robust portfolio selection problems, by D. Goldfarb G....
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1answer
267 views

Portfolio risk estimation through variance covariance matrix

Is the portfolio risk calculated through variance covariance matrix an estimate of the current risk of the portfolio? Suppose I am using the weights as of today, and I have estimated the variance ...
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1answer
173 views

portfolio returns when portfolio value is negative

I am being very stupid probably but I don't understand the following. Portfolio 1st Jan valued: -$100 A month later Portfolio 1st Feb valued: -$45 I calculate the return of the portfolio as, <...
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319 views

Simple mean reversion strategy portfolio construction

I had a quick idea I wanted to test, but am not sure of the correct way to size bets. Basically, I think that for a given index (say S&P), I want to be long under performers and short over ...
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1answer
364 views

Rockafellar-Uryasev mean-CVaR optimiztion

In Rockafellar-Uryasev 2001 paper the mean-CVaR optimization can be written as a linear programming optimization problem as: $$P_{\text{CVaR}} = \arg \min_w \text{VaR}_\alpha+\frac{1}{(1-\beta)S}\...
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38 views

Portfolio return through beta [closed]

Considering the beta value of the three assets in my portfolio simulation and the weights of the assets, i have computed the beta of the portfolio itself. How can i calculate the expected return of ...
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2answers
306 views

Portfolio Optimization Constraints

Wondering which are some standard constraints in portfolio optimization in practice? For example, assuming we want to maximize expected returns subject to a risk constraint, typically we may have -...
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1answer
125 views

Return.portfolio function for re-balancing with time series of weights

I am using the Return.portfolio function from the PerformanceAnalytics R package in order to re-balance the portfolio based on different frequencies (i.e. daily, weekly monthly, etc.) using a time ...
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1answer
95 views

What is the “characteristic” associated with the MMI portfolio? How would you find it?

I found the above question in Grinold and Khan "Active Portfolio Management", p39 Chapter 2 Q3 of the Exercises. I presume the MMI portfolio is the Major Markets Index portfolio, but I'm struggling to ...
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2answers
520 views

Leveraged Permanent Portfolio Using ITM Call Options

The permanent portfolio proposed by Harry Browne has had an excellent track record since the 1970's. It is able to compound at roughly 8% annually with a Sharpe ratio around 0.7. The permanent ...
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5answers
447 views

Logic behind sharpe ratio

I have a confusion regarding how the sharpe ratio is derived. My question is why the denominator contains the standard deviation of returns of portfolio? I mean why did someone came to this conclusion ...
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2answers
3k views

Portfolio Risk Decomposition - different methodologies

I understand that there are several methods for decomposing contributions to risk (be it variance, std dev, etc.) in a portfolio of assets. For example, a response in this post indicates that there ...
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1answer
46 views

Returns on leveraged account [closed]

If for example I deposit 10,000 dollars in trading account, and I can buy/sell in 20,000, so I'm using leverage. How returns are computed? I mean that my balance is consist of 20,000 + sum of returns,...
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2answers
1k views

Hierarchical Risk Parity with allocation constraints?

In the really interesting paper by Marcos Lopez de Prado a variation of risk parity is applied whereby the underlying assets of the portfolio are first split in 'correlation clusters' and the ...
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1answer
2k views

cvxpy portfolio optimization with risk budgeting

I'm trying to do some portfolio construction in cvxpy in Python: ...
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3answers
1k views

Value at Risk - Long/Short position

I have a simple question on the VaR for a portfolio that consists of a long and short position. Say I have a portfolio consisting of the following positions: long 1000 shares of stock X short 1000 ...
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1answer
240 views

Expected shortfall minimization as portfolio objective

I'm trying to solve portfolio problem with minimising its Expected shortfall, assuming the returns follow a stable distribution. If I'm able to calculate MLE fit to the series, calculate expected ...
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0answers
93 views

Volatility of stocks

I want to build a theoretical Portfolio with markowitz optimization for a course in University. The task is to build a Portfolio with low risk. So i want to do a CPPI strategy. Now the stock part of ...
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1answer
83 views

Analyzing stock performance - keep companies after bankruptcy?

I am currently analyzing the performance of stocks with high/low corporate social responsibility rating. Some companies went bankrupt during the observation period and I wonder how long I should keep ...
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1answer
492 views

Code examples of solving Stochastic Optimal Control problems

I'm currently reading a book demonstrating how Stochastic Optimal Control can solve common optimization problems encountered within quantitative finance. I haven't covered much continuous mathematics ...
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1answer
357 views

minimise tracking error whilst reducing number of trades required

I have a portfolio which is a subset of a benchmark. I want to minimise the tracking error between my portfolio and the benchmark. Currently I use APT's risk model to do this. I set it to run for 10 ...
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635 views

How to calculate the annual contribution of a fund to a portfolio of funds?

let's assume I have a portfolio of two funds (call them F1 and F2), where, by convention, there is a monthly compounding of the returns. On a monthly basis, the contribution of each fund will just be ...
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2answers
176 views

Am I calculating my Kelly Criterion correctly?

I'm taking a look at my trading history over a particular time period and have 500 trades on with an win rate of 82%. My average win is $W$. My average loss is $L$. So am I correct in assuming the ...
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0answers
212 views

Trouble computing the VaR for Student's t-distribution for a minimum-variance portfolio composed of four cryptocurrencies (BTC, ETH, LTC, and XMR)

I have modelled the time-series of daily log-returns from August 2015 to October 2017 of a minimum-variance portfolio composed of four cryptocurrencies (BTC, ETH, LTC, XMR) by fitting the data to four ...
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1answer
172 views

How to calculate the contribution (%) of an asset to the global correlation of the portfolio?

I have a portfolio X with weights $w_i$. I am trying to find the contribution $\xi_i$ of asset $i$ to the total correlation $\rho_{XM}$ of the portfolio X to an index M. I can't find these ...
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1answer
72 views

Commercial providers of scenario analysis and modeling

What are the major commercial providers that specialize in modeling the impact of specific global events on asset class performance? I'm familiar with Oxford Economics' Global Scenario Service, ...
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1answer
134 views

How to run optimization to achieve an equal active weight portfolio?

I am trying to build an equal active weight portfolio, while minimizing the total risk. However, my constraint of equal active weight always leads to 0 active weight for everything. I know 0 active ...
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2answers
198 views

Where can I find the European equivalents ETFs from a USD superdiversified 10 ETFs portfolio

I have been using this superdiversified 10 ETFs portfolio. To lower the risk it's composed from stocks and bonds across the globe and includes some commodities. Being in USD currency and the Euro ...
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2answers
1k views

Choosing the right statistical test for Mutual Fund Performance Evaluation

How do you suggest I do this? I would like to perform a statistical test to check if: the aggregate alpha of all funds equals 0. the aggregate beta of all funds equals 1. Data Sample of 1000 ...
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5answers
735 views

Modeling Long-Term Mean Reversion in Asset Returns

Fortunately, for obvious reasons, few applications require simulating asset returns over horizons in excess of 30 years. Nevertheless, simulations over long horizons are sometimes conducted as part ...
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1answer
60 views

How to keep the ratio of two assets constant when one asset is appreciating towards the other

I am looking for a formula that lets me keep the ratio between two assets in my portfolio constant when one of the assets is appreciating continually in comparison to the other asset. Imagine a ...
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1answer
732 views

Daily value weighted return and equally weighted size adjusted

For an event study, can anyone explain me the daily value weighted return for a benchmark and the equally weighted return size adjusted for measuring the EARs and how to calculate both weights? ...
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2answers
933 views

Portfolio Weights to Maximize Information Ratio (Finding Alphas)

In Finding Alphas, Chapter 1, Introduction to Alpha Design, the authors state: An alpha can be represented as a matrix of securities and positions indexed by time. The value of the matrix ...
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1answer
632 views

Finding arbitrage opportunity

Find an arbitrage opportunity in this market. Can anyone explain how to mathematically solve this exercise with for example solving a system of linear equations?
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4answers
6k views

What is the intuitive reason why the Gamma and the Theta tend to have the opposite sign?

Quoting Hull's book: When gamma is positive, theta tends to be negative. The portfolio declines in value if there is no change in S, but increases in value if there is a large positive or ...
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1answer
76 views

Implementation of total correlation of assets in R

I am trying to implement the (average) total correlation of assets, which is discussed here and here in R. Specifically, I am looking at $\rho_{av(1)}$ and $\rho_{av(2)}$: $$ \rho_{av(1)} = \frac{2 \...
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227 views

Portfolio risk budgeting using CVaR function from PerformanceAnalytics in R

I have been looking at CVaR function in the PerformanceAnalytics package as an option to use in portfolio optimization. However, ...
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1answer
131 views

Portfolio optimization with changing portfolio constituents

Say I have time series data for $N$ assets, where for the longest existing asset I have data from $t_0=0$ to $T$, but for several other assets I only have data from say $t_0+k$ to $t_0+l$ for some $0&...
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1answer
363 views

Data: to clean or not to clean

From risk management point of view using cleaned data (excluding or modifying extreme/outlier observations) would give less conservative measure as compared to real-world raw data. So they are more ...
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1answer
444 views

question about Quantopian alphalens

Quantopian has this package alphalens to do series of analysis on factors. I decided to dig in the code and make sense of the analysis. The question I have is: There are a lot of demean in the ...
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2answers
159 views

About the number of independent forecasts in the Fundamental Law of Active Management

The original FLAM predicts the information ratio by $$ IR = IC \times \sqrt{N} $$ where $IR$ is the Information Ratio, $IC$ is the information Coefficient and $N$ is the number of independent ...
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314 views

How can I use a more efficient volatility estimator to improve the co-variance matrix?

Using mean-variance, I need to estimate a co-variance matrix $\Sigma$ to obtain the best weights in my portfolio. However, there are other ways to compute the volatility $\sigma$ than historical ...
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2answers
3k views

non-subadditivity of VaR

I have been reading up on VaR and get very confused by the subadditivity concept. On wikipedia, it says "VaR is not subadditive: VaR of a combined portfolio can be larger than the sum of the VaRs ...
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1k views

What are reasons not to do factor investing in equity markets?

Factor investing in equity markets is one of the hot topics of these days. Many manufacturers of investment products offer exposure to small cap, momentum, minvol, value and other pure factors or ...
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0answers
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What is the state of the art in Capital Growth Theory?

I recently read Online Portfolio Selection: A Survey by Li & Hoi. I rarely hear OPS talked about in the quantitative finance community, aside from different types of mean-variance optimization. So ...
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1answer
2k views

Calculating alpha and its meaning

According to wikipedia, CAPM model is described by: $E(R_{i})=R_{f}+\beta _{{i}}(E(R_{m})-R_{f})$ And according to website such as http://investexcel.net/jensens-alpha-excel/, $\alpha = E(R_{i}) - ...