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I want to show the example of calling the Minimum Correlation Algorithm from Excel. I will use RExcel to connect R and Excel and will create a small VBA cell array function to communicate between Excel and R.

I have previously discussed the concept of connecting R and Excel in the “Calling Systematic Investor Toolbox from Excel using RExcel & VBA” post. Please read this post for the instructions to setup RExcel.

Following is a screen shot of the complete workbook:

I created the “MinimumCorrelation” cell array function in VBA. Do not forget to use CTRL+SHIFT+ENTER to enter “MinimumCorrelation” function into your workbooks. The “MinimumCorrelation” function will send historical price information from Excel to the R environment. It will next execute the R script to construct weights using the Minimum Correlation Algorithm, and finally it will collect R calculations of portfolio weights and transfer them back to Excel.

Here is the R script that calls min.corr.portfolio() function. I created a VBA function “create_rcode” to create this file automatically for this example.

###############################################################################
# Load Systematic Investor Toolbox (SIT)
# http://systematicinvestor.wordpress.com/systematic-investor-toolbox/
###############################################################################
if(!exists('min.corr.portfolio')) {
setInternet2(TRUE)
con = gzcon(url('http://www.systematicportfolio.com/sit.gz', 'rb'))
source(con)
close(con)
}

#*****************************************************************
# Setup
#*****************************************************************
n = ncol(hist_prices)
hist = na.omit(hist_prices / mlag(hist_prices) - 1)

# create historical input assumptions
ia = list()
ia$n = n ia$risk = apply(hist, 2, sd)
ia$correlation = cor(hist, use='complete.obs', method='pearson') ia$cov = ia$correlation * (ia$risk %*% t(ia\$risk))

# portfolio allocation
weights = min.corr.portfolio(ia, null)
dim(weights)=c(1,n)


Next, the “MinimumCorrelation” cell array function in VBA that calls min.corr.portfolio() function in R:

'Minimum Correlation Algorithm
Public Function MinimumCorrelation(ByRef r_values As Range) As Variant
' Start R connection
RInterface.StartRServer

' Write R code to file
create_rcode

' Put Historical Asset Prices into R
RInterface.PutArray "hist_prices", r_values

' Executes the commands in filename
RInterface.RunRFile r_filename

' Get Portfolio Allocation determined by the Minimum Correlation Algorithm into Excel
MinimumCorrelation = RInterface.GetArrayToVBA("weights")
End Function


The complete working copy of the MinimumCorrelation.xls workbook.

Please do not forget to use CTRL+SHIFT+ENTER to enter “MinimumCorrelation” function into your workbooks.