Portopt allows for two investment strategies: In the first strategy it maximizes the expected return of the portfolio, and, according to a chosen risk penalty, simultaneously minimizes the total risk (low penalty means high risk, high penalty means low risk). In the second strategy, it minimizes the total risk for a given expected return. For each strategy, Portopt calculates the optimal percentage of investment for each asset in the portfolio.
In an optimal portfolio, according to MPT, assets should not be selected individually by looking just at their expected return and risk. Rather, MPT considers the correlation between stocks. Hence, it tries to avoid investing in stocks that have similar trends (that are in the same market, for example), in order to choose the best diversification for the given risk willingness.
In order to measure the expected return, risk, and correlations of stocks, Portopt uses monthly closing quotes over a historical period of time. Portopt allows for different periods to adjust for shorter or longer investment horizons (long periods are for long-term investments, short periods for shorter investments).
See also the FAQ at: http://www.vrk-solutions.com/portopt.htm
Tags: portfolio optimizer.
Recently changed in this version:
- Version 1.1.0 now allows for investment constraints (fixing percentage of investment for individual stocks).
- Several bugfixes.