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Portfolio Optimization

Portfolio Optimization is a tool that helps you find the best asset allocation according to your objectives.

Portfolio optimization algorithms are based on Modern Portfolio Theory pioneered by Harry Markowitz. He proposed using mean and variance to find portfolios that deliver the highest return for a given level of risk. This method showed that the risk of an appropriately diversified portfolio is lower than the weighted-average risk of the assets that make it up. Subsequent research has shown that investors can attain the most diversification benefits by holding 12–18 securities in a portfolio.

This portfolio optimization tool uses the Mean-Variance Efficient Frontier to find optimal portfolios. Efficient Frontier is the set of all possible combinations of the securities in the portfolio that yield the highest return for a given level of risk.

How to optimize your portfolio

1. Select assets you want your portfolio to consist of and enter them in the form below. Portfolio optimization works best with assets that weakly correlate with each other.

2. Choose how you want to optimize the portfolio: make it less risky, more profitable, or both. With this portfolio optimizer tool, you can use the following optimization strategies:

  • Minimize volatility - optimize the portfolio to have minimum risk
  • Maximize quadratic utility - this optimization maximizes return while penalizing risk
  • Maximize Sharpe ratio - find the portfolio with the highest Sharpe ratio, also known as tangency portfolio
  • Minimize CVaR - minimizes conditional value at risk of a portfolio, also known as expected shortfall. It reduces the chance of significant losses due to a rare event.

3. Click Optimize Portfolio. That will display an optimal portfolio asset allocation according to the selected objectives. Along with the asset allocation, you'll find charts comparing various indicators of the original portfolio and the optimized, such as Sharpe ratio, performance, volatility, and drawdowns.

Portfolio


Your portfolio is empty. Add symbols manually or select an existing portfolio.

Optimization settings


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Optimal Asset Allocation


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Portfolio Performance


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Portfolio Sharpe Ratio


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Portfolio Drawdowns


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Portfolio Volatility


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