Finding the #MinimumRisk #portfolio on a two-security #EfficientFrontier

In the #Markowitz risk-return space, there is always a portfolio which #MinimizesVolatility. In recent years this allocation scheme has become increasingly popular as the risk free rate hovers near (or below) zero. For a portfolio of two securities, there is an analytic solution which allocates capital to both securities to minimize the portfolio volatility. We … Continue reading

The Kelly solution for one continuous distribution of possible returns

By Elliot Noma¬†with comments from Yu Bai The Kelly criterion is usually invoked for solving the optimal bet size for a two-outcome gamble. In other posts, we have considered the three outcome solution. Here we consider the optimal bet size for a specific family of continuous distributions, a uniform distribution of¬†outcomes over a unit interval. … Continue reading

R code to compute beta and the Sharpe ratio for a publicly traded stock

The following R code will calculate beta and the Sharpe ratio using adjusted closing prices from Yahoo finance. A video describing the output using an earlier version of this routine is available at # calculate beta and the Sharpe ratio suppressPackageStartupMessages(require(quantmod)) BRCM.Quote <-“BRCM”, from=”1950-01-01″, verbose=FALSE, auto.assign=FALSE) SPX.Quote <-“^GSPC”, from=”1950-01-01″, verbose=FALSE, auto.assign=FALSE) Prices … Continue reading