Questions tagged [portfolio-selection]

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78 views

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://...
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1answer
91 views

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). ...
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3answers
537 views

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 $\...
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37 views

Motivation/intuition behind the following portfolio selection problem

I am developing a Reinforcement learning algorithm for the optimal portfolio selection, using stochastic control approach. I have a market with risky and risk free assets. However becouse of some ...
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65 views

Portofolio selection by aggregating online expert advice

My question is about the following 2020 article : Universal portfolio selection strategy by aggregating online expert advice. I am at the moment trying to understand the underlying logic of the ...
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0answers
81 views

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 ...
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0answers
58 views

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 ...
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0answers
41 views

Is this efficient frontier graph reasonable?

Hi. The above image is taken from https://www.newfrontieradvisors.com/media/1166/optimization-with-non-normal-resampling.pdf. Is this a reasonable chart? The 4 different methods give 4 non-overlapping ...
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0answers
53 views

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 ...
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0answers
41 views

Apply dependent double qcut (à la Fama-French) in python

Dear StackOverflow community, I want to iterate a double qcut function, to create a dependent double sorting procedure. This procedure is employed by Fama & French (1993) to form quintiles ...
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0answers
100 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 ...
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1answer
124 views

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 ...
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2answers
790 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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0answers
59 views

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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1answer
74 views

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{\...
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5answers
364 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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45 views

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 ...
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1answer
3k 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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0answers
112 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 ...
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2answers
178 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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1answer
70 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....
3
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1answer
303 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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1answer
111 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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2answers
746 views

Reduce correlation in output of Minimum Variance Portfolio Optimization

After running a minimum variance portfolio optimization on a universe of ETF's I see the resulting portfolios tend to be composed of bond ETF or related treasuries/government ETFs. I suppose that ...
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0answers
49 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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0answers
106 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
152 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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0answers
1k 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 ...
1
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1answer
84 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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0answers
84 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
283 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
68 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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2answers
411 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
67 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
787 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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0answers
34 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
72 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 ...
1
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1answer
130 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
101 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
92 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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4answers
2k views

Strategy Risk and Portfolio Allocation Model (copy from nuclear phynance)

Here is a very interesting question that I found at Nuclear Phynance (original author: Strange); I though it is so interesting that it is worthwhile to ask it here: I have $N$ strategies, across a ...
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1answer
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 ...
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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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0answers
80 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

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 ...
2
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2answers
446 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 ...
5
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1answer
649 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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440 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
158 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 (...