All episodes of Chat With Traders x Quantopian mini-series are available here.
When one has a price model that they think will work well for forecasting returns, the next step is to actually trade it. This isn’t that simple for a variety of reasons. For one thing, you need to define how much risk you’re okay with taking on in a portfolio, and then try to maximize your returns while staying within those boundaries. This is the foundation of modern portfolio theory—we’ll discuss some real life issues with this.
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Topics of discussion:
- The need to spread capital beyond a single asset and the notion of optimization.
- Optimizing for maximum returns within your portfolio constraints.
- Implicit assumptions that can creep in during portfolio optimization.
- How an example strategy, trading gun manufacturers, could be optimized.
Links and resources mentioned:
- Intro to Optimization (Wikipedia)
- Optimization API (Quantopian forum)
- Portfolio Optimization (Jupyter notebook)
- Real returns vs normal distributions (Quantopian lecture)
- How mass shootings and politics boost gun shares (Quantopian forum)
- Trading algorithm shows how mass shootings, politics boost gun shares (Reuters)
- @ScottBSanderson (Twitter)
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