Portfolio Concept

No aspect of quantitative investment analysis is as widely studied or as vigorously debated as portfolio theory. Issues that portfolio managers have studied during the last 50 years include the following:

• What characteristics of a portfolio are important, and how may we quantify them?
• How do we model risk?
• If we could know the distribution of asset returns, how would we select an optimal portfolio?
• What is the optimal way to combine risky and risk-free assets in a portfolio?
• What are the limitations of using historical return data to predict a portfolio’s future characteristics?
• What risk factors should we consider in addition to market risk?

An efficient portfolio is one offering the highest expected return for a given level of risk as measured through many factors that affect the investor: factors such as age, economic availability, tendency to risk and the time perspective of the duration of the investment are the strong points on which to set up a performing portfolio.

Formulas and Knowledge are taken from:
DeFusco, Richard A. Quantitative Investment Analysis. Wiley, 2007.

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Author: Francesco Greco