Quantpedia Answers



Don’t know exactly how to use our tools? Read our Quantpedia Answers series, which will give you a manual and responses to the most frequently asked questions through brief and clear instructions.

Can I increase the return of my portfolio and not the risk?

1.  Markowitz portfolio optimization aims to create the most return-to-risk efficient portfolio by analyzing various portfolio combinations based on expected returns (mean) and standard deviations (variance) of the assets.

2. It calculates a so-called “efficient frontier” with the most return-to-risk efficient portfolios. An investor can then choose whether they prefer a higher return or lower risk. Additionally, you may also find a portfolio that is more profitable while preserving the same level of risk.

3. Let’s analyze an equally-weighted portfolio created in the Portfolio Manager:

4. The Markowitz Portfolio Optimization tool calculates a 12-Months Period Efficient Frontier.

5. As you can see, the Efficient Risk portfolio has a higher return while keeping the same level of risk.

6. And lastly, this chart shows the exact weights of each of the efficient portfolios.

7. Of course, it is not enough to find the ideal weights just at one point in time. To maintain a profitable strategy, you have to rebalance periodically. The following chart presents monthly rebalanced portfolios from the Markowitz model.

Subscribe for Newsletter

Be first to know, when we publish new content

    The Encyclopedia of Quantitative Trading Strategies

    Log in