Unproxying weight constraints
It is common practice to have portfolio constraints like: wi ≤ 0.05 That is, the weight of each asset can be no more than 5%. Proxy for risk We think that is what we want to do because we are so used...
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Weight compared to risk fraction
How well do asset weight constraints constrain risk? The setup In “Unproxying weight constraints” I claimed that many constraints on asset weights are really a proxy for constraining risk. That is not...
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Risk fraction constraints and volatility
What is the effect on predicted and realized volatility of substituting risk fraction constraints for weight constraints? Previously This post depends on two previous blog posts: “Unproxying weight...
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A test of Ledoit-Wolf versus a factor model
Statistical factor models and Ledoit-Wolf shrinkage are competing methods for estimating variance matrices of returns. So which is better? This adds a data point for answering that question....
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Again with Ledoit-Wolf and factor models
We come closer to a definitive answer on the relative merit of Ledoit-Wolf shrinkage versus a statistical factor model for variance matrices. Previously This post builds on the post entitled: A test of...
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Specific differences between Ledoit-Wolf and factor models
What can we learn about the difference in structure between a Ledoit-Wolf variance matrix and a corresponding factor model variance? Previously We’ve generated a set of random portfolios with...
View ArticleGeneralizing risk fractions
More ways of constraining the variance attributable to individual assets. Introduction This post describes some additions to the 1.04 version of Portfolio Probe. A beta of that version was released...
View ArticleLinear constraints with risk fractions
A different sort of generalization of variance partitions. Previously The post “Generalizing risk fractions” described additional (to version 1.04 of Portfolio Probe) ways of dividing the variance...
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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....
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