- Optimization Engine
- Performance Check
- Model Input
- Financial Content
- Anywhere Access
1. Segregation based on closeness to original portfolio
Portfolio OptimizationOptimizing your existing positions to adjust to an asset allocation that is optimal for your specified risk appetite. No additional assets are added. This is a classical mean-variance optimization without rebalancing
Passive RebalancingRemoving assets with negative expected returns and replacing them with assets drawn from the market. Then rebalancing it to get an asset allocation that is optimal for your specified risk level.
Active RebalancingRemoving 40 to 60% of assets with poor performance and adding better performing assets from the market. Then rebalancing it to get an asset allocation that is optimal for your specified risk level
Total RebalancingReplacing all of your existing positions with better performing assets. Then rebalancing your new portfolio to get asset allocation that is optimal for your specified risk level
2. Segregation based on performance gain over original portfolio
Perfect Optimization Suggested portfolio outperforms the original portfolio in all four categoreis
Good Optimization Suggested portfolio outperforms the original portfolio in three out of four categoreis
Weak Optimization Suggested portfolio outperforms the original portfolio in two out of four categoreis
Poor Optimization Suggested portfolio outperforms the original portfolio in one out of four categoreis
No Optimization Suggested portfolio does not outperform the original portfolio in any of four categoreis
Portfolio OptimizationThis toolset is written in the context of Modern Portfolio Theory (MPT). MPT suggests that rational investors will use diversification to optimize their portfolios. The goal of this toolset is to suggest a unique, optimal portfolio that can be constructed with respect to an investor's risk preferences and constraints.
Modern Portfolio Theory (MPT) is a sound method for many investors in establishing a disciplined approach to investing. It simply assumes that most investors dislike risk, and will make decisions based on maximizing returns for a level of risk that is acceptable to them. This toolset is built on this very simple assumption, giving mainstream investors a set of conventional techniques to reduce exposure to individual asset risk by holding a diversified portfolio of assets.
How to Use This Toolset
Building an Optimal Portfolio
Achieving Perfect Optimization
Next day Value At Risk (VaR) — Value of your portfolio that is likely to decrease over the next trading day
Expected Return — Weighted-average daily return of all assets in your portfolio
Total Risk — Standard deviation (volatility) of the portfolio returns
Sharpe Ratio — Excess return per unit of total risk in your portfolio
Two simple ways to optimize your portfolio1. The easiest way to determine if your portfolio is optimal is to pitch Portfolio Optimizer several times replacing your current portfolio with resulted optimal portfolio after each iteration. You should stop this process when all relative scores of your portfolio are identical (or almost identical) to relative scores of the optimal portfolio.
2. Another way to determine if your portfolio is optimal is to pitch Efficient Frontier several times replacing your current portfolio with resulted optimal portfolio after each iteration. You should stop this process when risk and return characteristics of both portfolios are the same (i.e. current and optimal portfolios simply overlap each other on the risk/return graph)Note: Depending on your attitude towards risk, you may settle for allocations that are superior to your existing portfolio but are not perfectly optimal. Although this is totally acceptable, we recommend to get at least three out of five stars before deciding to stop your optimization process.
Correlation InspectorCorrelation Inspector finds correlations between the returns of each asset in the specified portfolio against every other asset it contains. It constructs a conventional correlation table with color-coded cells, identifying the highest and lowest values, as well as values that fall within 1, 2, and 3 standard deviations from 0. Use Correlation Inspector
Watchlist AnalyzerBefore comparing or considering investments, it is better to perform a risk-adjusted return calculation that will adjust the returns according to how risky the investments are. The riskier they are, the more the returns are lowered before any comparison. Technically risk refers to mean volatility, which measures how returns vary over a given period of time. An investment or a portfolio that grows steadily has low risk, and another investment with a value that jumps up and down unpredictably has high risk. Use Watchlist Analyzer
Performance AnalyzerPerformance Analyzer runs balanced, risk-adjusted comparisons between different assets. It uses two commonly used performance indicators — Sharpe and Treynor. The Treynor Measure takes into account systematic risk whereas the Sharpe Ratio uses volatility. Assets with higher performance ratios should be preferred to assets with lower performance. Use Performance Analyzer
Portfolio OptimizerPortfolio Optimizer evaluates the One-Day Value At Risk of the optimal portfolio along with total risk, expected return, and several common performance measures. The result is compared to your existing portfolio. The main objective, as a rational investor, is to outperform the existing portfolio in all 5 categories. Use Portfolio Optimizer
Efficient FrontierThis model constructs a basic Markowitz Efficient Frontier that represents variously weighted combinations of the portfolio's assets, yielding the maximum possible expected return at any given level of risk. It identifies the optimal portfolio on the efficient frontier for the desired risk level. Use Efficient Frontier
Portfolio RebalancingRebalancing is simply the process of buying and selling portions of your existing portfolio after an investment strategy or tolerance for risk has changed, or if market conditions have changed. By using the Wealth Optimization Toolset investors can adjust the weight of each asset in the portfolio to satisfy a newly devised asset allocation.
Applied Modern Portfolio Theory (MPT)
The dot-com crash in the beginning of this century and current financial crisis
taught many investors an important lesson:
A combination of rapidly increasing stock prices, individual speculation in stocks, accounting gimmicks and manipulations, widely available venture capital, relaxes lending standards, abuse of collaterized mortgage obligations and securities and adoptions of 'Ponzi' and other pyramid schemes by private fund managers created an exuberant environment in which many investors became exceedingly wealthy.The bursting of the bubble created a completely opposite effect, as many unprepared and uninsured investors lost their fortunes as quickly as they acquired them just a few years earlier. Following the beginning of a rather lengthy recession, many investors are drastically reconsidering their investment habits as well as asset allocation principles and are turning to a more educated approach to diversification and market risk management.
Macroaxis LLC delivers a simple methodology to communicate complex wealth management analytics. Our implementation of Modern Portfolio Theory (MPT) is based on simplicity, speed, accessibility, and enhanced user experience, making technology that was once accessible only to professional money managers available to the entire investing community.