# Tag Info

### Intuitive Explanation for Shannon's Demon?

Whether it's called volatility pumping, rebalancing premium, or Shannon's Demon it would just be a form of replicating a short gamma option strategy (eg. selling straddles). Intuitively, you are ...
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Accepted

### How to measure if investors are diversified in a stock market?

I think the first step is to define what you mean by "properly diversified". A traditional/fundamental standpoint would be that the portfolio is comprised of many different sectors, industries, ect. ...
Accepted

### Is it better to express a currency position through multiple pairs?

My 10 cents is to think about how, if the market is buying GBP, for example, then it will buy GBP against any or all other currencies. It's not a matter of buying GBP only against USD or EUR although ...
• 1,156
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### Total portfolio VaR greater than aggregated individual VaRs

Since this question does not seem to be a duplicate, I will make up a simple (but not entirely unrealistic) numeric example. Suppose some asset is now trading at some observable price, and suppose ...
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### how to construct a diversified portfolio based on correlation

The maximum decorrelation portfolio can ensure your portfolio is not so correlated in one general asset class: min $\mathbf{w^{T} C w}$ subject to constraints that weights sum to 1 and are non-...
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### How to choose a stock?

This seems like a terrible idea. If you can have such an automated system for one stock, you can have it for many stocks. Then, since you're a serious investor, you want to take into account the ...
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### Do equity mutual funds typically have industry-level diversification constraints?

You would typically find such information in a prospectus. For example the prospectus of the Vanguard World Equity fund (VGHEX) doesn't have any wording putting hard limits on industry allocation or ...
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### How can beta be negative?

An index that represents all of the market is a CAPM assumption, but in reality $m$ is typically some stock index (like the S&P 500, which represent U.S. large cap stocks). It's not practical to ...
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1 vote

### Why is standard error used to show diversification effect for unsystematic risk?

OK, short answer, think of it this way. For a more formal explanation, google the distinction between what statisticians call a "confidence interval" versus a "prediction interval"....
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### How can beta be negative?

A negative beta just means there is a negative covariance (and thus correlation) between your asset in question and your reference “market” portfolio. Perhaps the most intuitive example of this is ...
• 5,061
1 vote

### Formula for underdiversification

A variant of the Herfindahl-Hirschman index, specifically its inverse, is probably the most widely used for this sort of thing. It's a measure of portfolio or market concentration, where an equally-...
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### Which Maximum Diversification Approach in MATLAB is correct?

Is the formula for code #1 $\max D(S)=\frac{S^{\top}\Sigma_S}{\sqrt{S^{\top}V_S S}}$? or is it $\max D(S)=\frac{1}{\sqrt{S^{\top}V_S S}}$ s.t. constraints $\Gamma$? Both appear on the same page, 41, ...
• 2,990
1 vote

### Decreasing dependence during the financial crisis?

From my experience, I think your results are plausible. Due to the globalization, economies and stock markets from different countries are much more connected than in the past. Furthermore, since the ...

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