Good progress this week:
> It turns out I don't need to completely reinvent the wheel as there's a perfectly fine framework for portfolio testing: Backtrader
> Down the road, it's even possible to automate the excecution with a free commission broker: Alpaca.
> Found this nice paper
offering some other ideas for portfolio selection, the new feature is the addition to Total Payout (Dividend + Share Repurchase)
> Along the same lines, the stock selection of these etf's could be useful
SPDR® Portfolio S&P 500® High Dividend ETF
SPDR® S&P® 500 Buyback ETF
iShares U.S. Dividend and Buyback ETF
Cambria Shareholder Yield ETF
> I was able to implement the method to maximize the diversification ratio
, which is defined as:
The diversification ratio is the ratio of the weighted average of volatilities divided by the portfolio volatility
> I looked into the broker options:
1.) Interactive Brokers:
The Good: I already have an account, MOC orders, Good API
The Bad: Will cost around $250-$300 per year.
The Good: Free, I already have an account.
The Bad: No specific lot id, web interface is poor, No MOC order
3. Merrill Edge:
The Good: Free 30 trades (this should be enough)
The Bad: Open another account, park money 3 months before enjoy $0 commissions.
> Found this nice paper
on risk parity an other optimization methods.
Risk Parity, Maximum Diversification, and Minimum Variance: An Analytic Perspective
Journal of Portfolio Management, Vol. 39, No. 3, pp. 39-53 (Spring 2013).
Posted: 1 Jan 2012 Last revised: 21 Nov 2013
Roger G Clarke
Ensign Peak Advisors
Harindra de Silva
Analytic Investors, Inc.
BYU Marriott School of Business
Date Written: June 1, 2012
Analytic solutions to Risk Parity, Maximum Diversification, and Minimum Variance portfolios provide useful perspectives about their construction and composition. Individual asset weights depend on both systematic and idiosyncratic risk in all three risk-based portfolios, but systematic risk eliminates many investable assets in long-only constrained Maximum Diversification and Minimum Variance portfolios. On the other hand, all investable assets are included in Risk Parity portfolios, and idiosyncratic risk has little impact on the magnitude of the weights. The algebraic forms for optimal asset weights derived in this paper yield generalizable properties of risk-based portfolios, in contrast to empirical simulations that employ a specific set of historical returns, proprietary risk models, and multiple constraints. The analytic solutions reveal precisely how the various kinds of predicted risk impact the relative magnitude of security weights under each type of risk-based portfolio construction.
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes