Portfolio Construction without Optimizers

Agenda Program Online
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Prague, NH Hotel Prague
Hybrid Training
Both classroom and online training available
Price for online training
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Attend this training course and learn about:

Analytical and Numerical Optimizations
The Issues with Optimizers
Equal-Weighted Investing
Scoring/Rating-Based Approaches
Tactical Asset Allocation with Scores and Ratings
Building Portfolios taking into Account Correlations
Risk-Based Portfolio Construction
Inverse-Volatility Trade
Portfolio construction in Modern Portfolio Theory (MPT) equals mean-variance optimization. It is an open secret that practitioners are struggling to implement MPT despite the many innovations proposed in the last 30 years of applied research. In this seminar, we focus exclusively on non-optimization techniques, which allow turning signal into allocations without the use of optimization algorithms. Solutions discussed range from simple rules-of-thumb heuristics, mapping techniques, risk parity ideas to promising insights from more recent quantitative research related to machine learning and related methods.

Approach: Top-down presentation focusing on the bigger picture, combined with spreadsheet example calculations which can be modified to be used in productive applications or transferred to other system environments like R, Python and similar.

Materials: Participants will receive the presentation slides, spreadsheets containing example calculations and a free license of our Excel add-in “Advanced Portfolio Analytics” (used in some of the spreadsheets).

Program of the seminar: Portfolio Construction without Optimizers

The seminar timetable follows Central European Time (CET).

09.00 - 09.15 Welcome and Introduction

09.15 - 12.15

Why we build Investment Portfolios

  • Search for Diversification, not Diworsification
  • Real Diversification Effects: Non-Linear Dependencies and Non-Normal Distributions
  • Market-Cap-Weighting as a Non-Optimization Approach Pros and cons.

What is Optimization?

  • Analytical Optimization
    • Unconstrained mean-variance problem
    • Linear Equality and Inequality Constraints
  • Numerical Optimization
    • Linear and Quadratic Problems
    • Other Search Algorithms
    • Random Portfolios for Portfolio Construction

12.15 - 13.15 Lunch break

13.15 - 17.00

What are the Issues with Optimizers?

  • Concentration: a Feature, not a Bug
  • Garbage-In-Garbage-Out: Out-of-Sample Issues
  • Real-world Constraints
  • Multiple Goals, Goal Conflicts
  • Time-variable Goal Functions

09.00 - 12.15

Non-Optimization Portfolio Construction

  • Equal-Weighted Investing: No Information Investing
  • Waterfall Allocations from Hierarchical Clusters
  • Scoring-/Rating-Based Approaches
    • Scores vs. Ratings, Scores as Signals
    • Scoring assets vs. scoring underlying factors that drive investment returns
    • Long/Short Portfolios Subject to a Gross Exposure Constraint
    • Long-Only Portfolios Without Leverage
    • Tactical Asset Allocation with Scores and Ratings
    • Taking into Account Risk
    • Building Portfolios Based on Risk-Adjusted Returns
    • Building Portfolios Taking into Account Correlations
    • Taking into Account Restrictions

12.15 - 13.15 Lunch break

13.15 - 17.00

Risk-Based Portfolio Construction

  • Inverse-Volatility Trade
  • Risk Parity: Equal Volatility Contributions and Beyond
  • Bringing Back Return Considerations

Four Excel-based exercises will be held. The exercises are group exercises, to take into account differences in applied quantitative skills among participants. The solutions will be discussed and a sample solution distributed.

Conclusion of the Seminar

Training catalogue in PDF
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