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
117 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
621 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
519 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
4k 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
48 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
3k views

cvxpy portfolio optimization with risk budgeting

I'm trying to do some portfolio construction in cvxpy in Python: ...
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3answers
2k 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
311 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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94 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
84 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
614 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
395 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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1answer
977 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
212 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
306 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
220 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
81 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
153 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
245 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
837 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
881 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
1k 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
693 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
7k 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
82 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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1answer
253 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, ...
4
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1answer
151 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
392 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
479 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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3answers
189 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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1answer
330 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
4k 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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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
78 views

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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2answers
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}) - ...
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1answer
294 views

What is a notation '1' in risk neutral probabilities paper?

I'm reading the paper by Zhao et al (2008) and have a problem with used definitions in the text on the page 1535. First, we generate a sample, $R$, of a given size from the distribution (21). Let $\...
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1answer
1k views

What is the difference between the Single Index Model and Multi-Index Models in computing the variance-covariance matrix of stock returns?

Would be very grateful for some help in comparing the single index model with other multi-index models in computing the variance-covariance matrix.
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1answer
455 views

if you short sell? And Right issue has taken place, so Does Right issue has negative positions in Portfolio or not?

I am searching for exact accounting example of Stock right position in Portfolio when someone is short sell. Searched a lot over Google, contacted local Brokers as well..Didn't get any response. ...
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3k views

What is the total correlation between assets in a portfolio?

Suppose I have portfolio with 10 assets, each one of them with a weight of 10% from the total portfolio (equally weighted). It's well known how to measure from historical prices->returns a variance-...
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1answer
595 views

Minimize overall portfolio turnover under constraints

Assume I have M portfolios, each of them can be represented as a T by N matrix, where N represents number of stocks traded and T represents number of days. For each portfolio matrix, each row is under ...
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2answers
91 views

Compute gaussian VaR with a “1-month horizon”

I am trying to compute VaR for a long-only equity portfolio, under the assumption that all stock returns are normally distributed, using a "1-month horizon" methodology. How do I do it? Do I compute ...
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43 views

Future Quotes on the S&P 500 Index

I am looking at the following quotes of the futures prices of the S&P 500: http://finance.yahoo.com/q/fc?bypass=true&s=ESM16.CME&ltr=1 The way I read this, the market thinks that ...
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1answer
126 views

Covariance matrix for VaR: what to do with missing data?

I need to compute a covariance matrix using three years of stock returns from a portfolio which has a couple of stocks with only one or two years of history (being relatively new stocks). Should I ...
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1answer
142 views

What does “1-month horizon” mean in VaR calculations

For a simple equity portfolio, I need to compute historical 1-year simulation VaR with a "1-month horizon". I imagine this means I need to compute the 1-month return of the portfolio at each point in ...
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1answer
1k views

How to compute VaR of a simple equity portfolio?

How do I compute VaR of a simple equity portfolio? I know current weights and can easily access the history of the stocks' daily returns.
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1answer
124 views

would multiplying a co-variance matrix by the inverse of a variance matrix generate a beta matrix?

I was multiplying the popular calculation w' * Σ * w and got the idea of generating a beta matrix. multiplying Co-variance by inverse variance. Would this work? generating the beta of each asset to ...
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2answers
560 views

Delta hedge value formula

When we delta hedge with implied volatility, and dynamically adjust every day, I believe the PnL theoretically is $$PnL = 0.5 \Gamma S^2 (\sigma_r^2 - \sigma_i^2)dt$$ where $\sigma_r$ is realized ...

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