Portfolio Construction Examples

Introduction

The efficient frontier computation functions require information about each asset in the portfolio. This data is entered into the function via two matrices: an expected return vector and a covariance matrix. The expected return vector contains the average expected return for each asset in the portfolio. The covariance matrix is a square matrix representing the interrelationships between pairs of assets. This information can be directly specified or can be estimated from an asset return time series with the function ewstats.

Note

An alternative to using these portfolio optimization functions is to use the Portfolio object (Portfolio) for mean-variance portfolio optimization. This object supports gross or net portfolio returns as the return proxy, the variance of portfolio returns as the risk proxy, and a portfolio set that is any combination of the specified constraints to form a portfolio set. For information on the workflow when using Portfolio objects, see Portfolio Object Workflow.

Efficient Frontier Example

frontcon has been removed. To model the efficient frontier, use the Portfolio object instead. For example, using the Portfolio object, you can model an efficient frontier:

• Obtaining Portfolios Along the Entire Efficient Frontier

• Obtaining Endpoints of the Efficient Frontier

• Obtaining Efficient Portfolios for Target Returns

• Obtaining Efficient Portfolios for Target Risks

• Efficient Portfolio That Maximizes Sharpe Ratio

• Estimate Efficient Frontiers for Portfolio Object

• Plotting the Efficient Frontier for a Portfolio Object