Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
5,922 documents
The document considers how to optimize a portfolio over a short horizon when hedge fund or other illiquid asset indices are available only at low frequency. It questions whether monthly observations provide enough data for a two-year estimate and rejects…
The document asks whether free cash flow to the firm and free cash flow to equity coincide for a company with no interest-bearing debt, and whether equity value can then be calculated as operating value plus cash. The answer agrees that the two cash flow…
The discussion outlines ways to separate currency effects from local-market allocation and security selection when portfolio and benchmark weights and returns are available. One approach measures currency value added with a simple currency attribution, then…
The document clarifies two formulas that can appear to measure security selection in performance attribution: benchmark weight multiplied by the portfolio-minus-benchmark return, and portfolio weight multiplied by that return. The distinction depends on…
The document explains why positive definiteness matters for the covariance matrix in mean-variance portfolio optimization. Portfolio variance is a quadratic form in portfolio weights, and a valid covariance matrix cannot imply negative variance. Positive…
The document addresses a failure to simulate jointly distributed returns when the covariance matrix cannot be Cholesky-decomposed. The proposed remedy is to adjust the correlation matrix so it is positive definite. One suggested approach uses an eigenvalue…
The document asks whether combining two portfolios can produce an expected return above that of the higher-return constituent while also producing volatility below that of the lower-volatility constituent. Its example gives one portfolio a higher expected…
The document asks whether a minimum-return constraint in a two-risky-asset portfolio can determine the allocation without using the assets’ variances or covariance. With weights summing to one, the expected return is an affine function of the first asset’s…
The document asks whether a Sharpe-ratio portfolio optimizer should ignore correlations after a backtest appears stronger with a diagonal covariance matrix. Setting off-diagonal covariances to zero can remove offsetting holdings, leaving positions more…
The document compares ways to alter a 2s5s10s swap butterfly so its exposure to broad curve movements is reduced while keeping the 5-year body weight at two. It describes three approaches: hedge the first principal component of 2-year, 5-year, and 10-year…
The document explains that negative weights in risk-parity portfolios depend on the construction method and its constraints. An inverse-volatility allocation is positive by design, and many full optimization implementations impose nonnegative weights.…
The document considers whether retail investors can hedge severe equity-market declines by buying deep out-of-the-money index puts, how to size and roll such positions, and whether a packaged product may be easier to use. The replies caution that repeatedly…
The document discusses how to interpret a portfolio’s daily return standard deviation on an efficient-frontier plot. Under an approximate normality assumption, the accepted answer relates one standard deviation around the mean to roughly a 68% probability…
The document asks how to attribute a portfolio’s factor-model variance to individual factors. It starts from a covariance decomposition into factor risk and specific risk, then forms position-weighted factor exposures by multiplying asset weights by the…
The document asks how to compare portfolio allocation strategies beyond the performance measures used in a cited study of optimized portfolios and the naive equal-weight strategy. The answer points to research on alternative risk and reward specifications…
The document considers how to evaluate a pooled investment made up of projects with different start dates and a common sale date. It contrasts summing the project cash flows and calculating a combined internal rate of return with weighting separate project…
The document explores why portfolio investors distinguish factors that forecast returns from factors used to describe risk exposures. Its central correction is that bearing risk does not guarantee a return premium: some exposures may have a researched…
The document discusses a liquidity score defined as the ratio of pure market profit-and-loss conditional value at risk to market-plus-liquidity profit-and-loss conditional value at risk. In an attempt to reproduce an example from a liquidity and market risk…
The document presents a question about the mutual fund theorem in a market with one risk-free asset and at least one risky asset. It describes the theorem’s intuition: under the stated assumptions, an investor can combine a risk-free holding with a common…
The document asks how to turn country-level fundamental scores, such as GDP growth, into allocations across G10 currency pairs versus the US dollar. The response separates two problems: converting fundamentals into expected risk-adjusted returns, and…
The document explains how principal component analysis can help assess whether yield curve movements are well described by a parallel shift. Apply PCA to changes in yields across maturities, then inspect the first component’s loadings: a parallel-shift…
The document examines why the Merton portfolio formula can produce a large recommended allocation to equities. The fraction depends on expected excess return, volatility squared, and risk aversion. Using historical equity returns, a risk-free rate, and…
The document addresses a replication problem in a Jegadeesh–Titman style momentum strategy: portfolios formed from rolling returns appeared to have identical results across formation periods and ranks. It outlines a procedure for calculating each security’s…
The document compares two portfolio weight formulas: the global minimum-variance portfolio and a maximum-Sharpe portfolio. It asks whether the sum of absolute weight powers, scaled by the power, must be smaller for the minimum-variance portfolio when the…