Tuesday, May 25, 2010

Investment Planning: Asset Relocation 4

4 types of believer views return-to-risk ratio.
1) Risk adverse - believe in risk free investment is the most secure investment in the universe.
Portfolio characteristic/Solver key constrains: lowest standard deviation


2) Risk taker - believe in high risk high gain and no risk no gain.
Portfolio characteristic/Solver key constrains: highest return, 100% concentration to one counter

3) Risk optimize - believe in statistical optimization in portfolio.
Portfolio characteristic/Solver key constrains: highest sharpe ratio, (averagereturnrate - riskfreerate)/standarddeviation

4) LUCK - believe in supernatural, windfall, random or trial-and-error
Portfolio characteristic: random, no plan or fortune teller.


Conclusion:

Portfolio Risk Portfolio Return Sharpe Ratio
Risk Adverse 2.4% 0.8% 0.2479
Risk Taker 12.6% 6.1% 0.4690
Risk Optimize 3.8% 3.3% 0.8090


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