Questions tagged [portfolio-selection]

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Portfolio construction in the real world [closed]

Good day. I am looking to understand how the portfolio construction process is actually done in the industry. Now, I do not know if there are too many resources on how things are currently being done (...
rodrigo's user avatar
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Combining many trading strategies in an efficient

I have a lot (>50) of back tested (and naively "validated") trading strategies. They trade different ETFs, mostly equities, but also others (like GLD, USO, ...). These are all strategies ...
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portfolio weights based on past returns

In the academic paper Industries and Stock Return Reversals by Hameed and Mian (JFQA,2015) (see picture below), the authors describe a trading strategy based on reversal, which essentially buys past ...
user9875321__'s user avatar
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How to calculate returns of a portfolio with rebalancing? [closed]

I would like to compare the performance between a portfolio with the 30% of firms in S&P500 that have the highest ESG score to a portfolio with the 30% with the lowest ESG score. Then I would like ...
Jess's user avatar
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Principal Portfolios Prediction Matrix estimation (Bryan Kelly)

I have recently discovered Bryan Kelly's paper on Principal Portfolios (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3623983) and had some doubts about the prediction matrix $\Pi$. He defines $\...
SL133's user avatar
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Interpreting Statistically Significant (or Insignificant) Difference in Alpha Between Two Portfolios

Suppose that I have two portfolios: A and B. The factor model used to compare these two portfolios is the same. Now, suppose model A has an alpha of 0.3 while model B has an alpha of 0.8. Assume that ...
testsubject's user avatar
1 vote
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164 views

Relative Strength in Altcoins compared to Bitcoin

I trade stocks using relative strength analysis compared with S&P index. I was wondering if crypto traders do the same compared with Bitcoin price %change. These coins had a higher %gain than btc ...
mel's user avatar
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Literature about optimal number of stocks in a diversified portfolio

Is there any recent paper on how many assets one should consider for portfolio optimization techniques? I found: – https://www.jstor.org/stable/2330969?seq=1#metadata_info_tab_contents – https://...
Barbab's user avatar
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Why techniques for portfolio optimization do not take into account the non-fractionability of stock prices?

In a market with 3 stocks: Stock A with price 25.00 USD; Stock B with price 32.50 USD; Stock C with price 50.75 USD; Any portfolio optimization technique results in a vector of asset weights $\...
Barbab's user avatar
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Quantatively identifying stocks to short when overall market starts to roll-over

Lets say we are seeing the market starting to top right now. Obviously, this leads to positioning on the short side. My issue is that I have a wide choice of stocks to short (overwhelmed by choice). ...
cephalopod's user avatar
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OLPS in real conditions

The Online Portfolio Selection problem has been extensively researched over the years, and various models have been implemented in open-source projects on GitHub. However the theoretical frameworks of ...
Dr. Paprika's user avatar
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Calendar time portfolio construction

I am writing my master's thesis about analyst star-rankings and whether their recommendations have investment value. For these purposes I am trying to construct calendar time portfolios as it was made ...
Orif's user avatar
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Index to track my portfolio of all ETFs

I have the following portfolio of all ETFs: I am attempting to apply Black Litterman and on the step of calculating market weights. I have the following questions: How can I define what index to use ...
Erdos_x's user avatar
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171 views

Calculating portfolio weights for Black-Litterman model

I am attempting to construct a portfolio using the step by step Black-Litterman model. My idea is to have a portfolio of, say 10 ETF's (equity based) in one sector and then add some uncorrelated asset ...
Ali khan's user avatar
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Is the portfolio return distribution a weighted combination of individual asset return distributions?

We know that the portfolio expected return is a weighted sum of the individual assets' expected returns (asset means). We also know that the portfolio variance is a weighted combination of the ...
develarist's user avatar
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Correlation between mean-variance efficient portfolios

If the covariance solution between the returns series of the minimum-variance portfolio ($A$) and any other portfolio along the efficient frontier ($B$) is $$Cov_{A, B} = \frac{1}{\mathbf{1}^T\mathbf{\...
develarist's user avatar
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Maximum expected return portfolio: Lagrangean derivation of closed-form analytical solution

\begin{align} \arg \min_w \enspace & -w^\top \mu \\ \mathrm{s.t.} \enspace & 1_N^\top w = 1 \\ & w_i \geq 0 \enspace \forall i=1,\dots, N \end{align} is the optimization problem for ...
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Symbol for the feasible set of portfolios in mean-variance analysis?

When we optimize some mean-variance efficient portfolio, it lies on the efficient frontier (blue line) which is considered superior to the feasible set of portfolios. The feasible set (red dots), on ...
develarist's user avatar
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1 vote
2 answers
307 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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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: ...
develarist's user avatar
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2 votes
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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....
twhale's user avatar
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3 votes
1 answer
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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 ...
Luigi87's user avatar
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1 vote
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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 ...
Ali Mustafa's user avatar
2 votes
3 answers
204 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 ...
user23564's user avatar
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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 ...
develarist's user avatar
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1 answer
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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. ...
Denis's user avatar
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1 answer
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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-...
Jorisdrees's user avatar
2 votes
0 answers
96 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 - '...
renato's user avatar
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8 votes
1 answer
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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 ...
Eiffelbear's user avatar
7 votes
1 answer
368 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 ...
David Addison's user avatar
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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 ...
E.B.'s user avatar
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1 vote
1 answer
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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 ...
Amrit Prasad's user avatar
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1 answer
1k 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 ...
whisperer's user avatar
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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 ...
fralau's user avatar
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1 vote
2 answers
86 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 ...
Novic's user avatar
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1 vote
1 answer
164 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 ...
G D's user avatar
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1 vote
0 answers
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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 ...
user2968163's user avatar
1 vote
1 answer
100 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 ...
Hans Leifson's user avatar
2 votes
1 answer
3k 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 ...
Monte's user avatar
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2 votes
2 answers
468 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 ...
OlivierLarue's user avatar
1 vote
1 answer
1k 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 ...
Nourhaine Nefzi's user avatar
3 votes
2 answers
2k 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 ...
quant007's user avatar
2 votes
0 answers
87 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 ...
Thomas Johnson's user avatar
2 votes
2 answers
514 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 ...
finstats's user avatar
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3 votes
2 answers
2k 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 ...
Zeca's user avatar
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6 votes
1 answer
758 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 ...
WiWiStudent's user avatar
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0 answers
579 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 ...
Nick's user avatar
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0 votes
1 answer
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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 (...
tk79's user avatar
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0 votes
1 answer
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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 ...
Richi Wa's user avatar
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1 vote
1 answer
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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.
Vandana's user avatar
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