Q4: Portfolio Optimization – Risk Preferences In, Trades Out w/ Scott Sanderson & Delaney Mackenzie

Aaron Fifield Podcast 2 Comments

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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.

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