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 whether correlation-based clustering can create statistical groupings of tradable instruments to supplement standard classifications such as GICS. The questioner converts correlations into distances and asks how hierarchical clustering…
The discussion outlines ways to evaluate an acquisition when forecasts are available but detailed balance-sheet information is missing. Suggested discount rates include WACC, cost of equity, cost of debt, an internal hurdle rate, or a risk-free rate,…
The document asks how to measure returns and Sharpe ratios for a trading record when starting capital is unknown and portfolio value can be zero. It illustrates the difficulty with a long stock position funded by an equal short position in cash: dividing…
The document considers how to divide a bankroll between two independent strategies to maximize expected logarithmic growth. Each strategy has two possible outcomes: an 8% gain or a 5% loss, with different probabilities of a gain. The allocation weights must…
The document outlines a PCA workflow for studying relationships among selected assets and constructing portfolio spreads. It recommends converting price histories to log returns and centering the observations, then calculating a covariance matrix; a…
The document compares approaches to allocating a fixed budget across stocks when only whole shares can be bought. One greedy method starts with one share per asset, repeatedly adds a share to the holding furthest below its target weight, and stops when the…
The document evaluates a portfolio manager’s claim that a 10% loss was good performance in a year when the market fell 30%. With a beta of 0.2 and a risk-free rate of 5%, the CAPM expected return is calculated as −2%. Comparing the observed return with that…
The document addresses a singular excess-return covariance matrix that arises when cash earns exactly the risk-free rate. Because that return is constant relative to the chosen benchmark, cash has zero variance and zero covariance with the other assets,…
The document is a reading guide for researchers beginning portfolio backtests. It points to presentations and papers on the purpose of backtesting and common sources of misleading performance, with particular attention to multiple testing: repeatedly…
The document considers repeated single-period portfolio choices among many risky assets with known, non-normal return distributions. Each asset either produces a large gain with a small probability or loses its full value; assets may be correlated, and the…
The document asks how to estimate relationships among return series that begin at different times, a common issue in portfolio risk analysis. It contrasts filling missing observations with index returns scaled by estimated beta against a more integrated…
The document asks whether portfolio weights can be applied directly to asset log returns to calculate realized portfolio returns. The setting is weekly data: volatility forecasts come from GARCH models, and the resulting estimates feed a mean-variance…
The document considers whether principal component analysis can convert a detailed interest rate risk ladder into exposures at selected benchmark tenors. PCA changes the coordinates used to represent risk, producing components ordered by how much historical…
The document frames a conceptual question about how market makers and investors can both operate in financial markets often described as zero-sum. It characterizes market makers as selling derivatives, hedging exposures to market risk factors, and providing…
The document resolves an apparent conflict between portfolio returns calculated from portfolio value and weighted averages of individual asset returns. The key is that portfolio weights for the return period must be measured at its start. With fixed asset…
This question considers whether a long-only portfolio can be explained or replicated using a linear combination of long-short factor returns, such as Fama–French factors or Betting Against Beta. The proposed analysis is a return regression: factor…
The document discusses ways to turn a forecast about a fixed-income spread into the confidence input used by Idzorek’s version of Black-Litterman. It contrasts an investor’s subjective judgment with estimates grounded in observed outcomes or statistical…
The exchange describes a common fixed-income application of principal component analysis: analyzing changes in yields across maturities. The first three components are characterized approximately as level, slope, and curvature, and are said to capture most…
The document examines how to interpret asset-level contributions to portfolio variance. It describes a marginal-risk measure based on twice the covariance between an asset and the portfolio, and explains why this quantity depends on the other holdings…
The note asks how shrinking an investment universe affects a mean-variance portfolio frontier and whether a lower global minimum variance proves that the entire larger-universe frontier dominates. The answer frames portfolio construction as a constrained…
The document explains how currency translation changes the return variance of a foreign equity portfolio. It expresses a European investor’s return as the US equity return combined with the EURUSD exchange-rate return, then expands variance into the equity…
The document raises a modeling question about projecting wealth over a long horizon with portfolio returns and scheduled cash inflows or outflows. It contrasts reducing nominal investment returns by an assumed inflation rate to obtain real returns with…
Portfolio beta is defined relative to a chosen benchmark as the covariance of portfolio returns with benchmark returns divided by the benchmark’s return variance. When holdings span bonds, sectors, and broad equities, their individual betas may refer to…
The discussion examines whether cointegration can help construct portfolios or measure risk. It distinguishes cointegration, which describes a long-run relationship among nonstationary price series, from the variance-covariance approach commonly used to…