Questions tagged [portfolio]

A portfolio is a collection of financial instruments. We often collect instruments together to represent the complete holdings of an investor and to analyze the overall risk (which may be lower due to diversification, i.e the portfolio holding multiple instruments).

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88 views

Ito's differential in portfolio dynamics

I try to be as concise as possible. Basically I'm following the text "Arbitrage Theory in Continuous Time", by Tomas Bjork. I put here the point where I'm stuck: Chapter 6 - Portfolio ...
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59 views

Can I build an efficient frontier using matrix algebra?

If i have a vector of expected returns $A$, a covariance matrix $C$ and a vector of the corresponding weights $W$ for each investment, is it possible to generate the efficient frontier with vector ...
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Optimizing Portfolio Return by Targeting Variance

I understand Markowitz and targeting returns to minimize our variance. I know this optimization problem well and its constraints. However when the reverse scenario is to be considered I get very ...
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43 views

Density of a portfolio's returns is the weighted average of asset distributions?

The expected return of a portfolio can be formulated as a weighted average of the constituent assets' returns: $$r_p = w_1 r_1 + w_2 r_2 + \dots + w_N r_N + \epsilon$$ Does it also follow that the ...
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132 views

Understanding what is 'special' about the security market line

I am trying to get my head around the CAPM model and all the intricacies of portfolio management. I have written some code to help me visualise what happens to the risk-return characteristics of my ...
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44 views

Variance/VaR calculation for a Portfolio

I'm considering a portfolio of multiple stocks (>2), and calculating their Standard Deviation/Variance and VaR for the portfolio. My question is about the below two ways to calculating them Consider ...
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72 views

Visualise returns of n-asset portfolio as 2D plot, like heatmap?

It's possible to visualise both asset allocations and returns of 2-assets portfolio as 2D heatmap. Like in image below, the visualisation of $[Gold, Silver]$ portfolio with restriction $Gold + ...
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170 views

What is the appropriate breakpoints for portfolio sorting (using CRSP stocks) based on size?

I want to sort stocks based on size. I use CRSP database from 1962 to 2018. My question is that in order to create quintiles, what is the appropriate breakpoints? and how can I calculate them? I saw ...
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44 views

Tracking a portfolio's annualized return

Sorry for this dumb amateur question, but looking for some help. I’ve created an Excel line chart that tracks a portfolio’s annualized rate of return. For example, a year ago the portfolio had an ...
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48 views

How long a time horizon should be for verifying the effectiveness of an investment strategy?

Question To verify the effectiveness of a certain asset allocation strategy, how long a time horizon should be? Is there any academic paper regarding this topic? Question in more detial I know ...
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59 views

Value of portfolio with fixed discrete dividends

I know that this is a very simple question, but i want to make sure to grasp the concept of ex dividend and value of portfolio. Suppose that we have a two period binomial tree of a stock with initial ...
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145 views

Calculate return for a set of securities downloaded using quantmod

I downloaded adjusted closing price using quantmod for a set of securities. I want to calculate daily/weekly/monthly return for all securities. Usual dailyReturn, weeklyReturn etc not working. What do ...
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148 views

Another variation of the 'Sharpe ratio' in CVaR-based portfolio optimization?

Question What is the ratio S(p) shown below? Do we have a name for it like 'Sharpe ratio'? The ratio above is introduced in the academic paper Optimal portfolio selection in a Value-at-Risk framework ...
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229 views

VaR Backtesting. High frequency of exceedances

I'm preparing for thesis defense and I've got simple question connected with Value at Risk backtesting. Portfolio VaR was calculated using historical simulation approach (250 days and 500days) and ...
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790 views

Equal Risk Contribution in Portfolio Analytics r pkg

I am trying to estimate the weights of an equal risk portfolio using the PortfolioAnalytics package in r. To start with, I have tried to redo the example provided in the portfolio vignette. The code ...
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238 views

A portfolio with two risky assets - Simple exercise

I was trying to solve the following exercise: "Stocks A have $\mu_A=8\%$, $\sigma_A=2,5\%$ and stocks B have $\mu_B=6\%$, $\sigma_B=1,2\%$. Let us suppose that expexted returns are independent. What ...
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47 views

Portfolio returns from activity records

I am looking for a clean and efficient way to obtain the portfolio returns from a list of activity records. Specifically, the activity file consist of BUY, SELL, COVER, SHORT, etc. records with ...
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347 views

Mean-Variance Optimization Techniques with Multiple Asset Classes

Why does it make sense to use single-period Markowitz mean-variance optimization techniques when we're trying to figure out asset allocation across multiple asset classes (bonds, stocks, REITs, etc)? ...
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316 views

How to get the average monthly percent excess returns for portfolios formed?

I'm replicating the Fama-French five factor model. I have formed factor portfolios. I'm not sure how to calculate the average monthly percent excess returns for portfolios. In other words, I want to ...
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725 views

Comparing Portfolio Volatility with Index Volatility seems a wrong method?

thanks for looking into this question. I am comparing an investment strategy against the S&P 500 for a financial article I'm writing. I compute volatility of the Portfolio in this way, as the ...
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265 views

I have volatility of a portfolio in year 1 and in year 2. How do I calculate the volatility over the total 2-year period?

thanks for looking into this question. See the picture below (better is right-mousebutton - open in new tab). I also have the price and return data of the Stocks if that's needed to calculate the ...
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1answer
83 views

Why is a smaller portfolio norm better?

If the norm of the portfolio weight vector, $\frac{1}{p}\sum_{i=1}^n |w_i|^p$ for $p=1,2$, of portfolio A is 0.6, and the norm of portfolio B is 0.4, then portfolio B is considered more attractive ...
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1answer
275 views

Portfolio turnover [closed]

Really easy question, but I am having doubts. If you want annual turnover, and you have monthly weights, wouldn't you just do in excel: {=ABS(CurrentMonthsWeights-LastMonthsWeights)*12} for each ...
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1answer
42 views

How to build a portfolio following the Smart beta process by dividend? [closed]

I'm having trouble finding the method to track smart beta dividend management. I have an Excel file which contains the prices and the dividends of certain companies, and I want to build a portfolio ...
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1answer
29 views

Value at maturity of long position in money market

This should be easy, but for some reason I am struggling with it. Say you have a long position in the money market (you hold dollars), say you own a quantity of $Ke^{-r(T-t)}$ dollars at time $t$, ...
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42 views

Differences Between Portfolio Daily Average Returns

I have a doubt about the average daily return for a 2 stock porfolio. I have the data of both stock returns over a 1511 day period. I used 2 approachs to calculate the average return. In the first one,...
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133 views

In a FX options book, is the sum of P&L equal to the portfolio value?

For a portfolio containing FX options, would the sum of P&L for each option be the portfolio value?
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8k views

Volatility of a multiple-asset portfolio [closed]

I have N assets with their individual volatilities $\sigma_{i,t}$. I construct a portfolio using the weights $w_{i,t}$ that I obtained in a matter that is irrelevant. Now I want to determine the ...
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104 views

Notation of long/short positions in defining a portfolio [closed]

I am a bit confused with the sign-related abbreviations used when we refer to long or short position on assets in a portfolio. For example denote the stock price, $S_t$ and the bond price, $B_t$ and ...
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77 views

What does $\phi^{(n)}(t)$ mean for a portfolio?

I am currently in the process of deciphering the notes written by an instructor. I missed the class. He writes: Continuous time trading: $S(T) = W(T)$, "Bachelier Model". $\phi(t)$ denotes ...
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40 views

How can i calculate realized volatility of a spread trade [closed]

If I have the realized volatility of of 2 asset classes, how can I calculate the volatility of a spread? Long 10 year, short 2 2 year 10 yr vol @ 6% 2 yr vol @ 2%
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2k views

How to compute simple and log portfolio returns?

I am looking for more details to perform simple and log returns for an entire portfolio. However, I've only been able to find the following semi-reliable source (see Page 9 and Page 19): Here are my ...
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Scaling Sharpe by sqrt(N) and Treynor by N? [closed]

I came across a QuantSE answer here and would like to gauge the community’s agreement with the idea of scaling a Treynor ratio using data with frequency N per year. After doing significant amounts of ...

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