{"id":7,"date":"2010-08-02T10:34:42","date_gmt":"2010-08-02T10:34:42","guid":{"rendered":"http:\/\/burns-stat.com\/wp\/"},"modified":"2012-04-22T19:27:35","modified_gmt":"2012-04-22T18:27:35","slug":"applications-of-random-portfolios","status":"publish","type":"page","link":"https:\/\/www.portfolioprobe.com\/about\/applications-of-random-portfolios\/","title":{"rendered":"Applications of random portfolios"},"content":{"rendered":"<p>There are (at least) three general areas for which random portfolios are useful:<\/p>\n<ul>\n<li>Performance<\/li>\n<li>Risk<\/li>\n<li>Quant<\/li>\n<\/ul>\n<h3>Performance<\/h3>\n<p>The concepts of &#8220;benchmark&#8221; and &#8220;peer group&#8221; have been extensively used in performance.\u00a0 Random portfolios are superior because:<\/p>\n<ul>\n<li>they are more specific to a particular fund<\/li>\n<li>they extract more information from the market<\/li>\n<\/ul>\n<p><a href=\"https:\/\/www.portfolioprobe.com\/about\/applications-of-random-portfolios\/perf_example\/\" rel=\"attachment wp-att-6857\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-6857\" title=\"perf_example\" src=\"https:\/\/www.portfolioprobe.com\/wp-content\/uploads\/2010\/08\/perf_example.png\" alt=\"\" width=\"500\" height=\"480\" srcset=\"https:\/\/www.portfolioprobe.com\/wp-content\/uploads\/2010\/08\/perf_example.png 500w, https:\/\/www.portfolioprobe.com\/wp-content\/uploads\/2010\/08\/perf_example-250x240.png 250w\" sizes=\"(max-width: 500px) 100vw, 500px\" \/><\/a>The picture is an example of random portfolios in action to assess performance.\u00a0 The <strong><span style=\"color: red;\">red<\/span><\/strong> line is the fund return during the year.\u00a0 It is in the left tail of the distributions, so an indication that the fund underperformed during the year.\u00a0 But there is much more information represented &#8212; you can learn what it is from:<\/p>\n<p><a class=\"more\" title=\"more about Performance Measurement\" href=\"performance-measurement\">more about Performance Measurement<\/a><\/p>\n<p>Other performance applications include:<\/p>\n<p><a class=\"more\" title=\"more about Performance Attribution\" href=\"performance-attribution\">more about Performance Attribution<\/a><\/p>\n<p><a class=\"more\" title=\"more about Portfolio Construction Process Attribution\" href=\"portfolio-construction-process-attribution\">more about Portfolio Construction Process Attribution<\/a><\/p>\n<p><a class=\"more\" title=\"more about Performance Fees\" href=\"performance-fees\">more about Performance Fees<\/a><\/p>\n<p>&nbsp;<\/p>\n<h3>Risk<\/h3>\n<p>Create realistic portfolios with which to test and compare risk models.<\/p>\n<p><a href=\"https:\/\/www.portfolioprobe.com\/about\/applications-of-random-portfolios\/samp1_lewolf_10_linw-2\/\" rel=\"attachment wp-att-6943\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-6943\" title=\"samp1_lewolf_10_linw\" src=\"https:\/\/www.portfolioprobe.com\/wp-content\/uploads\/2010\/08\/samp1_lewolf_10_linw.png\" alt=\"\" width=\"512\" height=\"480\" srcset=\"https:\/\/www.portfolioprobe.com\/wp-content\/uploads\/2010\/08\/samp1_lewolf_10_linw.png 512w, https:\/\/www.portfolioprobe.com\/wp-content\/uploads\/2010\/08\/samp1_lewolf_10_linw-250x234.png 250w\" sizes=\"(max-width: 512px) 100vw, 512px\" \/><\/a>The figure shows the relationship between predicted and realized volatility for a certain risk model, period and set of constraints.<\/p>\n<p><a class=\"more\" title=\"more about Assess Risk Models\" href=\"assess-risk-models\">more about Assess Risk Models<\/a><\/p>\n<h3>Quant<\/h3>\n<p>There are a number of specific uses of random portfolios that have been advanced within the quant realm.\u00a0 There are undoubtedly even more uses that have not yet been thought of.<\/p>\n<p><a href=\"https:\/\/www.portfolioprobe.com\/about\/applications-of-random-portfolios\/ret200spb1-2\/\" rel=\"attachment wp-att-6945\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-6945\" title=\"ret200spb1\" src=\"https:\/\/www.portfolioprobe.com\/wp-content\/uploads\/2010\/08\/ret200spb1.png\" alt=\"\" width=\"512\" height=\"480\" srcset=\"https:\/\/www.portfolioprobe.com\/wp-content\/uploads\/2010\/08\/ret200spb1.png 512w, https:\/\/www.portfolioprobe.com\/wp-content\/uploads\/2010\/08\/ret200spb1-250x234.png 250w\" sizes=\"(max-width: 512px) 100vw, 512px\" \/><\/a>The figure shows the returns of portfolios that &#8212; among their constraints &#8212; have beta essentially equal to one (0.99 to 1.01) compared to the index (S&amp;P 500).\u00a0 The black line is the return of the index.<\/p>\n<p>Important uses of random portfolios include calibrating backtests, and understanding the effect of the constraints that are placed on funds.<\/p>\n<p><a class=\"more\" title=\"more about Test a Trading Strategy\" href=\"test-a-trading-strategy\">more about Test a Trading Strategy<\/a><\/p>\n<p><a class=\"more\" title=\"more about Evaluate Constraint Bounds\" href=\"evaluate-constraint-bounds\">more about Evaluate Constraint Bounds<\/a><\/p>\n<p><a class=\"more\" title=\"more about Bid on a Portfolio\" href=\"bid-on-a-portfolio\">more about Bid on a Portfolio<\/a><\/p>\n<p><a class=\"more\" title=\"more about Quantitative Research\" href=\"quantitative-research\">more about Quantitative Research<\/a><\/p>\n<h3>See Also<\/h3>\n<p><a href=\"https:\/\/www.portfolioprobe.com\/category\/blog\/random-portfolios\/\">random portfolios blog category<\/a><\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>There are (at least) three general areas for which random portfolios are useful: Performance Risk Quant Performance The concepts of &#8220;benchmark&#8221; and &#8220;peer group&#8221; have been extensively used in performance.\u00a0 Random portfolios are superior because: they are more specific to a particular fund they extract more information from the market The picture is an example &hellip; <a href=\"https:\/\/www.portfolioprobe.com\/about\/applications-of-random-portfolios\/\">Continue reading <span class=\"meta-nav\">&rarr;<\/span><\/a><!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":2,"featured_media":0,"parent":159,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.portfolioprobe.com\/wp-json\/wp\/v2\/pages\/7"}],"collection":[{"href":"https:\/\/www.portfolioprobe.com\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.portfolioprobe.com\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.portfolioprobe.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.portfolioprobe.com\/wp-json\/wp\/v2\/comments?post=7"}],"version-history":[{"count":0,"href":"https:\/\/www.portfolioprobe.com\/wp-json\/wp\/v2\/pages\/7\/revisions"}],"up":[{"embeddable":true,"href":"https:\/\/www.portfolioprobe.com\/wp-json\/wp\/v2\/pages\/159"}],"wp:attachment":[{"href":"https:\/\/www.portfolioprobe.com\/wp-json\/wp\/v2\/media?parent=7"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}