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Portfolio Optimization Using Modern Portfolio Theory

Portfolio optimization model background

Objective: We have used the Modern Portfolio Theory (MPT) to maximize the Sharpe Ratio so that our portfolio lies on the efficient frontier.

MPT-Efficient-Frontier

Asset class: Our model supports dynamic portfolio types. We have included both equity indexes ( a broader asset class which is widely used by Robo-advisory platforms) and equity stocks. Our model is capable of supporting a global portfolio. As of now, we have considered the Indian and US market, but we can easily include other countries too.

Risk profiling engine and asset class constraints: We have conducted in-depth research to develop a risk profiling engine using both quantitative and psychological parameters. For each risk class, we will define a min-max range of different asset classes. Our model is advanced enough to meet both the objectives – maximizing investors’ return as well as qualifying the asses class criteria.

Calculation Period: At present, we have kept the flexibility to decide the data time-frame for calculation. In general, the past five years of data is used, but we have kept the flexibility to deal with abnormal situations.

Model Prototype In Action

Drop a comment or write us an email with any feedback about this article, queries info@pirimidtech.com. View our portfolio in building Robo advisory, Large Scale Trading Systems, Algo Trading, Stock Sentiments, Price Trends forecasting, Backtesting frameworks, Credit Model, Open Banking, etc. and services offered on our website. to see our Fintech expertise can help you build cutting-edge solutions powered by AI/ML.

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