More great posts. I am supposed to be working, and not talking, but don't worry there is always next weekend.
--- In [email protected], Howard B <howardba...@...> wrote: > > Greetings all -- > > There are several ways to create a portfolio from a group of individual > tradable issues or systems. > > The Markowitz CAPM Mean-Variance model has traditionally been applied to a > portfolio of individual equities, assuming that they will be bought and > held. You could treat each trading system as an equity, compute its mean > and variance, and plot it as a point on the M-V graph. Then apply CAPM > methods to select the optimal portfolio -- select the issues that give the > best return for the least variance, given the portfolio's objective. > > But if you are dealing with a number of trading systems, each of which has > already has an equity curve created by the active trading of one or more > issues, you might prefer to align the daily equity of the individual systems > by date, then search for the weightings that give the best, according to > your objective function, portfolio return. Of course, you could apply the > same technique to the daily closing prices of the equities. > > In the first example -- the CAPM model -- you will never choose a system > that has a negative return as a component of the portfolio. In the second > example, you might. > > Thanks, > Howard >
