Monthly Archives: July 2012
Returns with negative net asset values
How are returns calculated when net asset value goes negative? Previously In “A tale of two returns” we highlighted the similarities and differences of log returns versus simple returns. Positive valuation We create — in R — an example of net asset value at four times: > nav1 <- c(1000, 900, 950, 1010) > nav1 … Continue reading
US market portrait 2012 week 31
US large cap market returns. Fine print The data are from Yahoo Almost all of the S&P 500 stocks are used The initial post was “Replacing market indices” The R code is in marketportrait_funs.R
R Inferno-ism: order is not rank
Do not use order when you want rank. Background The update of “A comparison of some heuristic optimization methods” is due to the bug that Luca Scrucca spotted. Actually, it is two bugs: I used order when I meant rank This somehow escaped being in The R Inferno Problem What I said in my … Continue reading
A comparison of some heuristic optimization methods
A simple portfolio optimization problem is used to look at several R functions that use randomness in various ways to do optimization. Orientation Some optimization problems are really hard. In these cases sometimes the best approach is to use randomness to get an approximate answer. Once you decide to go down this route, you need … Continue reading
US market portrait 2012 week 30
US large cap market returns. Fine print The data are from Yahoo Almost all of the S&P 500 stocks are used The initial post was “Replacing market indices” The R code is in marketportrait_funs.R
2 dimensions of portfolio diversity
Portfolio diversity is a balancing act. Previously The post “Portfolio diversity” talked about the role of the correlation between assets and the portfolio. The current post fills a hole in that post. The 2 dimensions asset-portfolio correlation Each asset in the universe has a correlation with the portfolio. If there are any assets that have … Continue reading
US Market Portrait 2012 week 29
US large cap market returns. (For reasons unknown, the data for 2012-07-09 did not appear so what is shown as returns for 2012-07-10 is actually returns for both those days.) Fine print The data are from Yahoo Almost all of the S&P 500 stocks are used The initial post was “Replacing market indices” The R … Continue reading
Alpha alignment
An explanation of alpha factor alignment in portfolio optimization, and a look at the spectrum of views on it. Venue FactSet recently hosted an event that included a panel of representatives from several risk model vendors. The first question thrown at the panel was about alpha alignment. The opinions varied widely. There was positive correlation … Continue reading
Posted in optimization, Quant finance
Tagged alpha alignment, alpha eating, factor alignment
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US market portrait 2012 week 28
US large cap market returns. Fine print The data are from Yahoo Almost all of the S&P 500 stocks are used The initial post was “Replacing market indices” The R code is in marketportrait_funs.R
A practical introduction to garch modeling
We look at volatility clustering, and some aspects of modeling it with a univariate GARCH(1,1) model. Volatility clustering Volatility clustering — the phenomenon of there being periods of relative calm and periods of high volatility — is a seemingly universal attribute of market data. There is no universally accepted explanation of it. GARCH (Generalized AutoRegressive … Continue reading
