# 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.

650 questions
Filter by
Sorted by
Tagged with
625 views

• 433
1 vote
132 views

### 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?
• 433
244 views

### 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 ...
65 views

### 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 ...
• 433
251 views

### 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 ...
• 341
1 vote
67 views

### 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 ...
1 vote
124 views

### 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?
• 111
120 views

### 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 ...
• 5,662
1 vote
2k views

### 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-...
• 527
1 vote
56 views

### 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 ...
• 11
220 views

### 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 ...
324 views

### 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 ...
• 616
2k views

### 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 ...
• 11
923 views

### 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 ...
• 2,436
1 vote
94 views

### 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!
• 57
537 views

### 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{(...
1 vote
129 views

### 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 ...
205 views

### 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 ...
427 views

### 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 ...
• 309
456 views

### 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 ...
• 61
1 vote
50 views

### 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 ...
• 75
2k views

### 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 ...
• 179
2k views

### 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 ...
1 vote
127 views

### 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, $R_{i}$...
199 views

### 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 ...
• 176
1 vote
293 views

### 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 ...
• 2,980
175 views

### 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 ...
• 1,830
436 views

### 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 ...
• 31
111 views

### 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?
1k views

### 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 ...
• 171
2k views

### 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 ...
• 9,195
1 vote
89 views

### 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 ...
• 530
1 vote
155 views

### 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 ...
• 129
447 views

### 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 ...
435 views

### 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: ...
• 895
1 vote