In this article I show that very basic quantitative trading strategies that generate returns from different market behaviours, when combined, can provide a more desirable and stable returns stream, as reflected in a Sharpe ratio higher than any individual strategy. We show how absolute returns can be some-what ‘sacrificed’ for an improved risk adjusted return stream, which then can be later leveraged as per the investors risk appetite. Read more
To try and maximise return the correct recipe of ingredients must be brought together. Not only do we have to look at the quality of stock selection, but the weights and quantity of stocks required for maximising returns and minimising risk. Momentum investing looks to invest in top performing stocks and combining this technique with good diversification skills and portfolio optimisation should result top performing portfolios. An added benefit is that transaction costs will be minimised if the correct stocks are picked right from the beginning as less buying and selling will have to be done in the future.
This article will aim to answer the following three questions:
- How to pick the right amount of stocks to optimize a portfolio?
- How to pick the best stocks to include in the portfolio?
- How to get the weight for each stock in the portfolio right?