Questions tagged [portfolio-selection]

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37 views

Creating daily rebalancing stock portfolios based on analyst recommendations

I am doing research on analyst recommendations on Finnish stock market, using Can Investors Profit from the Prophets? Security Analyst Recommendations and Stock Returns by Barber etc. as reference ...
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2answers
88 views

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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39 views

Selecting the best characteristic portfolio per rebalance date

An investor typically decides a portfolio objective and sticks with that objective for every rebalance date in the portfolio's life. Common characteristic portfolios that the investor chooses are: ...
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1answer
66 views

Is there a sound logic for buying a portfolio of call options in the same ratio as you would buy the underlying shares?

Suppose I believe it would be profitable to build an investment portfolio by investing, say, USD 30,000 in stocks in the following ratio: 30% in shares of CompanyA, 30% in CompanyB and 40% in CompanyC....
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1answer
85 views

how to construct a diversified portfolio based on correlation

I have a porfolio of indexes and I built up a python model based on spearman correlation (I used a spearman and not a pearson because, after running some test on outliers and normality ...
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0answers
102 views

Can simple risk management outperform portfolio optimization like this, or is there most likely an error?

I am using a simulation approach to compare the performances achievable by simple risk management and portfolio optimization for portfolio selection. My problem is that my results indicate that simple ...
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3answers
140 views

Dealing with stochastic results of Machine Learning Models

I'm building stock selection models, and pick top 5 and bottom 5 stocks. Given the variability in Stochastic gradient decent results, they keep changing. One way to get consistent results is to use ...
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30 views

Transform Hierarchical Correlation structure to Standard Form

In the standard portfolio risk setup, we have $\sigma_{\Pi} = \sqrt{(w' B (VFV) B' w) + w'Dw}$ where $w$ is our weight vector for N assets $B$ is the Nxm factor beta matrix $V$ is the factor ...
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424 views

How good is the inverse-volatility portfolio?

Heuristic portfolio construction techniques include the equally-weighted portfolio (1/N) and the inverse volatility portfolio (IVP), which is based on the low-volatility effect. They can be assembled ...
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1answer
99 views

How would you equally distribute the risk of each stock in a portfolio?

Suppose you have in-sample (IS) and out-of-sample (OOS) daily returns of N stocks (IS and OOS dates are the same for each stock). Suppose you want to calculate return captured each day as x * ret. ...
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59 views

Portfolio construction in reality

I have a very basic knowledge of portfolio construction and optimization aside from the mean-variance efficient portfolio theory. I am looking for a series of resources to dig more into the topic ...
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1answer
77 views

Measuring liquiduity of a portoflio of bonds

I'm currently looking into applying bond liquidity out of curiousity. The Method i'm currently using is the Barclays LCS score (live.barcap.com/publiccp/RSR/nyfipubs/barcap-email-mkting/qps/LCS_In-...
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81 views

Jacobs and Levy: Enhanced Active Equity Strategies

Hello to everyone I am writing because I am having a bit of tough time figuring out how to replicate the constraints for a Portfolio Optimization using the set up from Jacobs & Levy 2006 - '...
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1answer
2k views

How are modern portfolio theory (MPT) and CAPM related?

1. Question In what sense Capital Asset Pricing Model(CAPM) is related with Modern Portfolio Theory(MPT)? Why do we need to check whether the current price of assets is overvalued or undervalued ...
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1answer
207 views

Question about quadratic form of f* in the Continuous Kelly Criterion

I am trying to follow the Optimal Kelly derivation on Wikipedia for two continuous assets: one risky and one risk-free. The derivation begins by assuming that the risky assets follows a GBM (a ...
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1answer
65 views

Country allocation -optimization 3 countries

I have the following problem: an equity portfolio allocated to 3 countries. Each country has an independent indicator (signal) which takes values from -4 to 4. The allocation for each country at ...
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1answer
62 views

Difference between constraining pre and post optimization

What's the implication of constraining the optimized portfolio weights obtained using no constraints vs obtaining the weights with the constraints in the objective? Let the asset returns be ...
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1answer
601 views

Characteristic Portfolio for an Attribute [closed]

Given a vector of attributes(eg.E/P ratios, betas) for N assets $a^T = {a_1,a_2,...,a_N}$ The exposure of portfolio $h_P$ to attribute a is $a = \sum_{n}a_n h_{P,n}$ Proposition: There is a unique ...
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25 views

How to determine incorporated funds from the CFI

I am making a model for the acquisition of financial instruments, and it is sometimes important (for legal or tax reasons) to be able to determine whether an investment fund is incorporated (SICAV or ...
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2answers
68 views

What is the return of risky asset in direct utility optimization probem?

I am trying to do this portfolio optimization for a one-month investment between S&P 500 as a risky asset and one risk-free asset: Assume that I have a power utility function, a risk-free rate ...
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1answer
84 views

Portfolio optimization of unequal length back-tests

I have a portfolio of assets. For each asset I have a back-tested time series of daily profits. I'm tying to optimize, using the correlation of daily returns, to minimize the total draw-down of the ...
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0answers
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
90 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
2k views

Calculate Returns of Momentum Strategy (Overlapping Portfolios - Jegadeesh and Titman 1993)

I want to implement a Momentum Strategy, followed by Jegadeesh and Titman (1993) with overlapping Portfolios. I want to duplicate their results. Quick Link to the paper (Unfortunately the Method is ...
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2answers
298 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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1answer
847 views

average return Vs cumulative return interpretation

I am looking for the interpretation which distinguishes between average return and cumulative return. I have two portfolios : the average return of portfolio 2 = 3 10E-4 per day while the average ...
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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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79 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
386 views

Portfolio optimisation with conditional weight restrictions among asset

I want to optimise a portfolio of assets from different countries (A,B,C...) where the set of all country-asset combinations is (A1, A2, A3, A4.... B1, B2, B3... C1...). I want to include a ...
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2answers
1k views

Dmat argument in solve.QP R function: Cov or 2*Cov?

Background My final objective is to find a portfolio located on the efficient frontier from a choice of 100 stocks from a stock index (eg. S&P500). This efficient portfolio will be such that ...
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1answer
546 views

Why did Markowitz not derive an equation for the efficient frontier?

Currently, I´m studying portfolio management and portfolio selection. The founder of the MPT is Harry Markowitz, of course. But reading his famous article from 1952 and his book from 1959 (actually, I ...
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314 views

How to calculate an option porfolio cost and payoff function?

There are call and put options on the same underlying asset, with the same expiry, $T$, and with strikes $K_c=(k_c^1, k_c^2, \ldots, k_c^m)$ and $K_p=(k_p^1, k_p^2, \ldots, k_p^m)$, $S_t$ is a price ...
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1answer
153 views

Essential new ideas in portfolio theory

I'm supposed to write an essay on "essential new ideas in my current field of research". Hence, I'm looking for essential (= it has the potential to change the way we look at the discipline) and new (...
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1answer
109 views

Including a score or a rank in portfolio-optimization

I have gathered a lot of experience using min-var optimization of the form $$ w' \Sigma w \rightarrow Min, $$ where $w$ are the weights of the assets and $\Sigma$ is the covariance matrix. Of course ...
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1answer
776 views

Can the net portfolio's beta be different from the sum of long and short betas of the portfolio?

The way I calculate it is summing up the weighted beta of long and shorts but I saw a table where this wasn't the case so I am wondering if this is not the correct way.
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103 views

How to understand quadratic finance or practice of Value-at -Risk(VaR)

We define the following notions for a jointly normally distributed random vector $P=(P_1,...,P_n)$ with f the density function. $$\mu=\int_{-\infty}^{\infty}(x_i-\mu_i)f_i(x_i)dx_i$$ $$\sigma^2_{ij}=...
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3k views

Problem with determining weights in tangency portfolio (2 risky assets)

I use the following well known formula in order to determine the weight of asset i in the tangency portfolio (in the case of two risky assets): $w_{i,T}=\frac{\sigma[r_2]^2E[R_1]-\sigma[r_1,r_2]E[R_2]...
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5answers
276 views

What can I use to measure of diversification?

I have to come up with a measure of diversification for trade (this can tie in closely to diversification as regards portfolios). Are there any well known measures of portfolio diversification?
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3answers
740 views

market neutral weights and cash values

I am looking at a market neutral portfolio and have a question which I think is probably pretty simple. So I can see the individual stock weights. ...
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0answers
174 views

Sharpe Ratio for loans

I am trying to calculate the sharpe ratio for a set of loans. These loans have already matured and I know if they were good or not: grades are the different grades of the loans. interest rate is the ...
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3answers
3k views

Handling Missing values in stocks returns when estimating the co variance matrix

What is the best way to handle missing values when stocks did not exist for the entire historical period?.
3
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1answer
420 views

Create optimal portfolio by Treynor and Jensens Alpha

I would like to know which formula to use in order to optimize a portfolio based on highest Treynor and Jensens Alpha. I am aware that usually one optimize a portfolio by highest Sharpe ratio (the ...
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1answer
87 views

Making portfolios better than others for a 16 week portfolio game? [closed]

I'm going to participate in a game of making portfolios. The objective of the game is to make the portfolio with the bigger ROI over 16 weeks. Over each week every player can see the ROI of each ...
3
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3answers
644 views

Budget Constraint in Sharpe Ratio Optimization

I am a math student and I am trying to understand the budget constraint in Sharpe Ratio optimization for portfolio design. Recall the budget constraint requires that the sum of the portfolio weights ...
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3answers
987 views

Sampling problem in portfolio optimization

In a summary I am trying to do the following Bond Subset 1 : Get list of USD Bonds --> Filter out Bonds which have YTM > y% DUR > 10 Y etc. .. This gives us Bonds which we are interested in. So in ...
8
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1answer
427 views

Overview of robust/regularized portfolio selection

I am looking for either a review paper or individual papers on portfolio selection using robust statistics or regularization (e.g. LASSO, Ridge, etc.) I.e. a review on methods along the lines of: M ...
3
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0answers
96 views

Optimize an equity portfolio for the four central moments: problem formulation

Basically i am confused as to which formula to use for portfolio skew and kurtosis and how to use the same in the optimization problem. I would also like to know the options available regarding the ...
3
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2answers
628 views

Determining the portfolio return distribution to calculate CVaR/ES

I'm trying to do a portfolio optimization with an expected shortfall constraint. For this, it is necessary to know the distribution of expected portfolio returns. When doing this empirically, my plan ...
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2answers
240 views

Comparing Cash Equivalent of risky portfolios

To compare two risky portfolios, Mean-Variance (M-V) portfolios for example, many compare their Cash Equivalent ($CE$). $CE$ is defined as the amount of cash that provides the same utility as the ...
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4answers
2k views

How to cluster ETFs to reduce cardinality for portfolio selection

I'm looking to run portfolio optimizations using various optimization goals - e.g. minimum variance, max diversification etc. My challenge is if I want to do this on ETF's which ones do I pick to run ...