Portfolio Allocation & Optimization
Installation
Professional traders outperform the market because, mainly, they diversify their portfolios instead of concentrating their attention on a single security. Our portfolio optimization tool allows doing exactly that. Investors now have the ability to create optimal portfolios across a number of securities and determine how to combine them in the most profitable way.
Unlike other providers, we deliver allocation calculations on a daily basis, rather than on a monthly or yearly basis. This allows customers to rapidly respond and adapt to changing market conditions.
This tool is designed to be used on desktop.
Use Cases
Let us assume that we go with the initial set of tickers displayed, BABA, BHP… XOM, and with the initial period, from 6 months ago (Nov-11-2020) until May-18-2021. If we press ‘Go,’ the allocations are as shown below, representing an annual return of $16,259.22 and a standard deviation of $2,907.63. The pie chart shows that in this case, with longs only, the maximum returns are obtained with three stocks. However, is the period from 6 months ago until today representative of conditions that we expect for the near future? If we think that the period from the beginning of the year represents it better, we will change our selection.
If the period now starts on Jan-01-2021, we can indeed get better returns, but they are concentrated on a single stock, XOM. The returns are great but it might be very risky. We may want to diversify. We click on ‘Shorts and Longs.’
In order to diversify, we reduce the amount that can be invested in any long position to, say, 40% of $10,000, or $4,000 per stock. The returns increase to $14,336.37 and the risk decreases a bit to $2,731.68.
The returns seem fine but what happens if we start using shorts?
Allowing shorts increases the returns to the previous level when we had only XOM, but with lower levels of risk ($2,960.91 instead of $3,340.12) which puts us in a better situation.
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Compare to the returns of the other two strategies, Minimum Risk and Equal Allocation ($2,466.66 and $1,032.52, resp.).
Start creating optimal portfolios across a number of securities and determine how to combine them in the most profitable way. Click on the button below to get started!