Maximize Return and Minimize Risk

Portfolio Optimization

The primary objective of portfolio optimization is to maximize investment gains while minimizing risk.

Portfolio Optimization - Theoretical Background

The behaviour of a portfolio is quite different from the behaviour of the individual components of the portfolio. Due to complex correlation patterns between individual equities, the risk of a properly constructed portfolio can be significantly less than the risks of individual equities in the portfolio. A good portfolio optimizer can exploit the correlations, expected returns, risks, and user constraints to achieve an optimal portfolio - the portfolio with the greatest return for the risk that the investor is willing to accept.

Designing the optimal portfolio cannot be done by human intuition alone, but it requires modern, powerful, and reliable mathematical solvers called optimizers. The optimizer determines a set of efficient portfolios that yields the highest return for a specific risk. The set of all efficient portfolios forms an optimization boundary which is called an efficient frontier. The portfolios located on the boundary offer the maximum return for a given risk, while portfolios below the boundary either provide lower return or are more risky than the optimal one. Finally, combining the efficient frontier with an investor’s utility function yields the investor’s optimal portfolio, the portfolio with the greatest return for the risk that the investor is willing to accept.

PortfolioSelector Portfolio Optimization

PortfolioSelector delivers optimization results in an easy to read table. Additionally, several charts provide graphical representation of the optimization results - the optimized portfolio allocations, the portfolio return, the portfolio risk, and the optimization boundary.

With PortfolioSelector, you can perform the following portfolio optimization tasks:

  • Determine the optimization boundary
  • Calculate the optimal portfolio equity allocations, return and risk
  • Solve for the optimal portfolios at the efficient frontier endpoints
  • Determine an optimized portfolio just by selecting a desired optimal portfolio return value
  • Determine optimized stock portfolios that meets your investment return goals
  • Compute alternative portfolio combinations
  • Perform your own analysis and scenarios
  • Minimize investment risk and maximize return

The creation of optimal portfolio is not just a problem of finding attractive investments. Utilizing the state-of-the-art quadratic optimization engine that is capable of solving the most challenging optimization tasks, PortfolioSelector provides a comprehensive portfolio optimization and analysis solution.


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