Portfolio Construction

Modeling Couch Potato strategy

October 25, 2012 | systematicinvestor

I first read about the Couch Potato strategy in the MoneySense magazine. I liked this simple strategy because it was easy to understand and easy to manage. The Couch Potato strategy is similar to the Permanent Portfolio strategy that I have analyzed previously. The Couch Potato strategy invests money in ... [Read more...]

Permanent Portfolio – Simple Tools

October 4, 2012 | systematicinvestor

I have previously described and back-tested the Permanent Portfolio strategy based on the series of posts at the GestaltU blog. Today I want to show how we can improve the Permanent Portfolio strategy perfromance using following simple tools: Volatility targeting Risk allocation Tactical market filter First, let’s load the ... [Read more...]

Minimum Correlation Algorithm Speed comparison

September 25, 2012 | systematicinvestor

The Minimum Correlation Algorithm is a heuristic method discovered by David Varadi. Below I will benchmark the execution speed of 2 versions of the Minimum Correlation Algorithm versus the traditional minimum variance optimization that relies on solving a quadratic programming problem. I have run the code above for n=10 (10 assets), n=100 (100 ... [Read more...]

Minimum Correlation Algorithm Example

September 23, 2012 | systematicinvestor

Today I want to follow up with the Minimum Correlation Algorithm Paper post and show how to incorporate the Minimum Correlation Algorithm into your portfolio construction work flow and also explain why I like the Minimum Correlation Algorithm. First, let’s load the ETF’s data set used in the ... [Read more...]

Minimum Correlation Algorithm Paper

September 21, 2012 | systematicinvestor

Over summer I was busy collaborating with David Varadi on the Minimum Correlation Algorithm paper. Today I want to share the results of our collaboration: Minimum Correlation Algorithm Paper Back Test reports Supporting R code The Minimum Correlation Algorithm is fast, robust, and easy to implement. Please add it to ... [Read more...]

Permanent Portfolio

September 17, 2012 | systematicinvestor

First, just a quick update: I’m moving the release date of the SIT package a few months down the road, probably in November. Now back to the post. Recently I came across a series of interesting posts about the Permanent Portfolio at the GestaltU blog. Today I want to ... [Read more...]

Adaptive Asset Allocation – Sensitivity Analysis

August 20, 2012 | systematicinvestor

Today I want to continue with Adaptive Asset Allocation theme and examine how the strategy results are sensitive to look-back parameters used for momentum and volatility computations. I will follow the sample steps that were outlined by David Varadi on the robustness of parameters of the Adaptive Asset Allocation algorithm ... [Read more...]

Adaptive Asset Allocation

August 13, 2012 | systematicinvestor

Today I want to highlight a whitepaper about Adaptive Asset Allocation by Butler, Philbrick and Gordillo and the discussion by David Varadi on the robustness of parameters of the Adaptive Asset Allocation algorithm. In this post I will follow the steps of the Adaptive Asset Allocation paper, and in the ... [Read more...]

The New 60/40

August 6, 2012 | systematicinvestor

I want to share a brilliant idea and a great example from the You’re Looking at the Wrong Number post at the GestaltU blog. Today, I will focus on the section of this post that outlines simple steps to improve a typical 60/40 stock/bond portfolio by using risk allocation ... [Read more...]

Factor Attribution 2

June 26, 2012 | systematicinvestor

I want to continue with Factor Attribution theme that I presented in the Factor Attribution post. I have re-organized the code logic into the following 4 functions: factor.rolling.regression – Factor Attribution over given rolling window factor.rolling.regression.detail.plot – detail time-series plot and histogram for each factor factor.rolling.... [Read more...]

Volatility Position Sizing 2

June 11, 2012 | systematicinvestor

I have discussed Volatility Position Sizing in the Volatility Position Sizing to improve Risk Adjusted Performance post using the Average True Range (ATR) as a measure of Volatility. Today I want show how to use historical volatility to adjust portfolio leverage. Let’s start with Buy and Hold strategy using ... [Read more...]

Volatility Quantiles

June 4, 2012 | systematicinvestor

Today I want to examine the performance of stocks in the S&P 500 grouped into Quantiles based on one year historical Volatility. The idea is very simple: each week we will form Volatility Quantiles portfolios by grouping stocks in the S&P 500 into Quantiles using one year historical Volatility. Next ... [Read more...]

Gini Efficient Frontier

March 23, 2012 | systematicinvestor

David Varadi have recently wrote two posts about Gini Coefficient: I Dream of Gini, and Mean-Gini Optimization. I want to show how to use Gini risk measure to construct efficient frontier and compare it with alternative risk measures I discussed previously. I will use Gini mean difference risk measure – the ... [Read more...]

Backtesting Asset Allocation portfolios

March 18, 2012 | systematicinvestor

In the last post, Portfolio Optimization: Specify constraints with GNU MathProg language, Paolo and MC raised a question: “How would you construct an equal risk contribution portfolio?” Unfortunately, this problem cannot be expressed as a Linear or Quadratic Programming problem. The outline for this post: I will show how Equal ... [Read more...]

Portfolio Optimization: Specify constraints with GNU MathProg language

March 14, 2012 | systematicinvestor

I have previously described a few examples of portfolio construction: Introduction to Asset Allocation Maximum Loss and Mean-Absolute Deviation risk measures 130/30 Portfolio Construction Minimum Investment and Number of Assets Portfolio Cardinality Constraints Multiple Factor Model – Building 130/30 Index (Update) I created a number of helper functions to simplify process of making ... [Read more...]
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