Tag Archives: Markowitz

Corrected Markowitz and Sortino views for optimal expected return

If you have seen any of my views of Markowitz for portfolio optimization for improved expected return.  You see them here:

Testing of Python Markowitz Portfolio packages

Deep testing of Python Markowitz Portfolio packages

You can always search for more with this

Here are some corrections on both Sortino and Markowitz from some an expert on my Telegram PRIVATE group:

Corrected view

I just wanted to mention a couple of things related to your recent posts.

The first is that Markowitz optimisations assume the returns are normally distributed (which is never the case in finance), so don’t expect to achieve the ‘expected’ return. Also bear in mind that such portfolio optimisation is intended to be done over much longer periods of time; doing it over a week or month is likely an exercise in futility because you’ll constantly be fitting your weights to very recent data which is almost guaranteed to change in the subsequent period due to the nature of financial markets.

In fact, many practioners have come up with improvements to Modern Portfolio Theory (which is certainly not modern these days), and many have also found equally-weighted portfolios to be preferable (e.g. https://www.diva-portal.org/smash/get/diva2:694576/FULLTEXT01.pdf). In any case, minimum variance optimizations should be preferred to mean-variance (aka Markowitz); the ‘expected’ return will likely be lower, but it will also be much more realistic than that of the Markowitz portfolio due to the greater out-of-sample persistence of risk-related measures such as variance when compared to those that contain information about absolute returns (e.g. mean of the return distribution).

The second is in relation to the Sortino ratio. You mentioned that the difference between it and the Sharpe is that the Sortino accounts for volatility. This is not the case; the Sortino is identical to the Sharpe except that it does not penalise positive deviation. For me personally, I prefer Sharpe because the objective function that I’m maximising is stability of returns. If you’re more interested in absolute returns, then Sortino is still preferable. But again, measuring over 7 or 30 days is essentially a random exercise.

Combining best performing forex pair should hugely increase your expected return and Sharpe Ratio

 

 

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Deep testing of Python Markowitz Portfolio packages

Full testing of Python Markowitz Portfolio packages

I am digging deep into this portfolio optimizations. One question came up was using Markowitz versus stats.

Check here to see my latest analysis with a 1 hour video.

This video below serves 2 purposes which includes a quick & dirty way to test the code if it works in my Python 2.7.13. I am pretty well not budging from this version for a while so I expect incompatibility problems with Python. This is why this video was made to showcase the trials and tribulation any newbie Python coder could go through including me. The second purpose of this video is attempt to find running Markowitz portfolio source code that will run which I did partially accomplish as demonstrated in the video. ition and set other styles.
Here is a recent conversation with Sholom B of Analytic Kinetics on this topic:

 

Me: Very valid comments, can you not run both markowitz framework and general stats in parallel? as you say, use the stats you generate under extreme conditions since the markowitz is not valid as you say
Sh: Extreme condition modeling and markowitz are not compatible.

 

Me: You switch berween based on market condition.

 

Sh: Market conditions change fast. You may not get advance warning anytime. Think flash crash.

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Testing of Python Markowitz Portfolio packages

 

Full testing of Python Markowitz Portfolio packages

In this video, I highlight some Trading Scripts you can use for analyzing a portfolio with Markowitz techniques. There are many other techniques but these seemed to work OK. In fact, one of the Demonstrations was to showcase zipline Python package  from Quantopian. It seems that I may have had compatibility issues since I’m using Python 2.7.13. As said previously, I’m trying to religiously stay with this particular version since I’ve had very few compatibility issues with other packages. That was up until this week where I need to upgrade to a more recent core version of Python. This  video is to demonstrate various compatibility issues you could have with packages and different versions of Python. Please keep that in mind when watching this video as you’ll see I fumble around a lot. This was recorded with newbies in mind really which is why I posted it.

Here is the length video

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Tips and tricks with Dukascopy JForex for forex trading

Tips and tricks with Dukascopy JForex for forex trading

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Helpful Markowitz Portfolio theory links

Helpful Markowitz Portfolio theory links

I am very interested in getting this implemented ASAP for portfolio optimization

The Efficient Frontier: Markowitz portfolio optimization in Python


https://www.quantopian.com/posts/the-efficient-frontier-markowitz-portfolio-optimization-in-python-using-cvxopt
Portfolio Optimization with Python

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Markowitz portfolio optimizaion and Bayesian Regression

Markowitz portfolio optimizaion and Bayesian Regression

We talked about this last week but this may be the most popular way to do it

I may implement this into my options/futures strategy

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Markowitz analysis of today vs 2008

Markowitz analysis of today vs 2008

From the NYC Contact:

Going over this again something really bothers me. 1) ‘ Dr. Markowitz is certain 2008 was not an outlier event. “… It’s a one-in-40 event. It wasn’t the worst year of return.” ‘ >> Yes because of unprecedented government intervention. Without that it could have easily been a 4 or 5 standard deviation move. 2) ‘ The basic notion that you should worry about risk and return on the portfolio as a whole, and this involves forward looking estimates of means, variances and co-variances, that has not changed. ‘ >> Very simplistic. How good are your estimates? Don’t you need to add the empirical probability of your estimate being correct? what about accounting for market regime change? I guess the above statement assumes that you have done all this.

 

https://www.bnymellon.com/us/en/our-thinking/dr-harry-markowitz-2008-was-not-so-different.jsp

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