This is the process of changing the mix and/or choice of investments in a portfolio so as to produce the maximum expected return for a given level of risk.
Underlying portfolio optimization is the concept of diversification where specific risk of a portfolio may be reduced and removed all together by holding investments that have low or negative correlation.
However, unlike volatility, correlation is the enemy here because in times of stress, historically observed correlations tend to breakdown (previously uncorrelated investments become highly correlated) and eliminate any advantages of diversification.
Take a look at the Advance Risk management course to get comfortable with an Excel Solver based spreadsheet for optimizing portfolio allocation using historical data and investment policy goals.
- Duration & Convexity Calculation Example
- What is Risk?
- Liquidity Stress Testing
- Advance Risk Management Workshop – Portfolio Optimization & Greeks
- Calculating Value at Risk (VaR)
- Market Risk Metrics
- Fixed Income Investment Portfolio Management & Optimization Case Study – Risk Training
- Liquidity Stress Testing a fixed income securities portfolio
- Convexity & Duration calculator for US Treasuries
- Five steps to hedging Vega and Gamma exposure in Excel
- The case for Optimal portfolio alpha.
- Portfolio alpha stability and allocation optimization models.
- Higher moment Portfolio models. Skewness preference.
- Insurance portfolio optimization challenge solution.
- Portfolio management - Life Insurance investment portfolio optimization challenge
- Index matching portfolio optimization with Solver
- Portfolio management. The difference between Beta and Alpha.
- Building Excel portfolio management worksheet.
- Portfolio management - Risk and Return
- Market Risk Metrics – Volatility Trend Analysis