The Proper Use of Beta (β)

Aug 03

The Proper Use of Beta (β)

In my previous post I highlighted the flaws associated with Beta (β), in this post I would like to explore the proper use of Beta. Studies have shown that managed portfolios only outperform the S&P500 Index about 1/3rd of the time in both bear and bull markets - this means that for 2/3rds of the time it is better to just invest your money in an index fund, and...

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The Problem With Using Beta (β) As A Proxy For Risk

Apr 01

The following is a brief list of definitions for beta from various textbooks and research papers.  Though brief, I believe that this is a representative sampling of the modern perceptions regarding beta. Damodaran – “standardized measure of the risk that investment adds to the market portfolio.”  “Statistically, the beta of an investment measures how it co-­‐varies...

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Markowitz Portfolio Theory – Final Comments

Dec 04

In my previous two posts regarding the Markowitz Portfolio Theory, I did not consider the dividend yield in the optimization to reduce the complexity of the model.  In this post I will explore the impact of adding the dividend yield to portfolio selection, plus verify the stock’s selected by checking if they are presently undervalued. You can download the...

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Non-Linear Optimization Using Palisade’s Evolver

Sep 18

Non-Linear Optimization Using Palisade’s Evolver

In my previous post on solving the non-linear Markowitz Portfolio equation Portfolio Optimization, I used the minimization of CV as my objective function, and used Excel’s Solver (made by Frontline Solutions and bundled with Excel), and Frontline Solution’s Premium Solver to optimize a portfolio of stocks taken from the  the S&P 100 Index.   In that...

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Further Discussion of Portfolio Optimization

Sep 04

Using the same model that was explored in a previous post Markowitz Portfolio Theory, but enhancing this model by using FrontlineSolver’s Risk Solver Platform, the model could be extended to more constraints.  What I wanted to explore is whether constraining the maximum percent weight of any individual stock in the portfolio would sub-optimize the solution....

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