Portfolio Optimization
Portfolio optimization is a quantitative process used in finance to select the best possible combination of investment portfolio assets and their weights, given a set of objectives and constraints. The primary goal of portfolio optimization is to maximize return while minimizing risk. Our online portfolio optimization tool is designed for individual investors, financial advisors, and wealth managers. It utilizes advanced mathematical algorithms and financial models to generate optimal investment portfolios balancing desired returns with acceptable risk levels. It takes into account a wide range of variables, including market trends, historical data, asset correlations, and economic indicators, to provide investors with a comprehensive analysis of their portfolio's performance.
Mean-Variance Optimization (MVO)
This foundational model of portfolio theory balances risk and return, aiming for the highest expected return for a given risk level using historical data. However, its reliance on statistical estimates can lead to over-concentration in certain assets.
Risk Parity
Instead of focusing on capital allocation like MVO, this model equally distributes risk across all assets or asset classes in a portfolio. It results in more diversified portfolios and is less sensitive to market changes compared to MVO.
Hierarchical Risk Parity (HRP)
Combining aspects of MVO and risk parity, HRP uses a hierarchical clustering algorithm to allocate risk within asset clusters. This approach leads to enhanced diversification and is effective in managing market instabilities.
Your portfolio is currently empty. You can import symbols, add them manually, or select from an existing portfolio.
Optimization settings
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Position Weight Constraints
Position Weight Constraints
| Symbol | Min. Position Weight | Max. Position Weight |
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Optimal Asset Allocation
Click Calculate to get resultsPortfolio Performance
Click Calculate to get resultsAllocation Over Time
Click Calculate to get resultsClick Calculate to get resultsPortfolio Drawdowns
Click Calculate to get resultsPortfolio Volatility
Click Calculate to get resultsAsset Correlations Table
Click Calculate to get resultsHow to choose the right optimization objective
Choosing the right objective for your portfolio optimization depends on your investment goals, risk tolerance, and investment horizon. Consider the following factors when selecting an objective:
Risk tolerance: Assess your level of comfort with fluctuations in the value of your investments. If you're risk-averse, objectives like minimizing volatility or CVaR might be more suitable. Or consider maximizing quadratic utility or Sharpe ratio if you're willing to take on higher risk for potentially higher returns.
Investment goals: Align the objective with your specific financial goals. For example, if you're saving for a long-term goal like retirement, you might focus on maximizing the Sharpe ratio to achieve higher risk-adjusted returns. Minimizing volatility could be a better choice if you're more concerned with preserving capital.
Investment horizon: Consider the time frame of your investments. Longer investment horizons often allow for greater risk-taking, as markets tend to fluctuate over short periods but exhibit long-term growth trends. Shorter horizons may require a more conservative approach, such as minimizing volatility.
Diversification: Ensure your portfolio includes positions diversified across different asset classes, sectors, or regions. This can help mitigate risk, create a more resilient portfolio, and achieve better optimization results.
Remember, there is no one-size-fits-all approach to choosing an objective. Understanding your financial goals, risk appetite, and investment horizon is essential to make the best decision for your unique situation.