Portfolio Optimization

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 the specific risk of a portfolio may be reduced and removed altogether by holding investments that have a 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.

 
Portfolio Optimization

Free Courses

View More >>

Recent Posts

  1. Portfolio Optimization Models in EXCEL, 3rd Ed.
  2. Calculating Portfolio Holding Period Return
  3. Evaluating portfolio performance. A single metric to rule them all?
  4. The difference between value and growth investing
  5. Impact of taxes and fees on retirement savings and spending
  6. The case for Optimal portfolio alpha.
  7. Portfolio alpha stability and allocation optimization models.
  8. Value investing lessons from the Big Short (film) – Part II
  9. The Big Short case study
  10. Higher moment Portfolio models. Skewness preference.

View More >>

Portfolio Optimization
Portfolio Optimization