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Portfolio Optimization Software

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Overview
The Hoadley Portfolio Optimizer applies the principles of Modern Portfolio Theor
y (MPT) and the Capital Asset Pricing Model (CAPM) to analyzing and optimizing
a portfolio of stocks and/or other asset classes.
The Excel-based application, which is not password protected, performs two key f
unctions:
bulletData download (or import) and analysis
The data download and analysis function (which is optional) will automatically r
etrieve historic stock, fund, and index prices from Yahoo Finance (most exchange
s supported), or from an external spreadsheet, for a complete portfolio and will
calculate key risk measures such as volatility (decomposed into active risk, re
sidual risk and market risk), Beta, and R-Squared: for individual securities, t
he specified index, and for the portfolio as a whole.
Historical trends for individual asset volatilities, betas, prices, and tends fo
r correlations between pairs of assets can be viewed graphically to provide a pi
cture of their stability over time.
Value at Risk (VaR) and Conditional Value at Risk (CVaR, also known as Expected
Shortfall) are also calculated for the portfolio.
Portfolio Analysis
Note: The retrieval of data from Yahoo is optional and the portfolio optimizatio
n process does not in any way depend on Yahoo data. The optimizer can be used wi
th historical price data from any source, such as Bloomberg providing that data
can be placed in columns (one column per symbol) in any spreadsheet. One button
click will then import data from that external source.

Portfolio Optimization
The portfolio optimization component uses mean-variance optimization (MVO), orig
inally developed by Harry Markowitz, to determine the weightings of each asset r
equired to produce a range of returns for the portfolio at the lowest possible r
isk (the efficient frontier). The "assets" to be optimized can be individual as
sets (eg individual stocks, bonds, funds) or asset classes (eg equity and other
indices, funds of a particular investment style, an industry sector).
Both models have their strengths and weaknesses. An explanatory spreadsheet whi
ch provides additional information and compares and contrasts efficient frontier
s produced by both models is available for download.
Minimum and maximum weights can be specified for each asset, including negative
weights if short positions are permitted.
Assets can also optionally be assigned to user-defined asset groups. The groups
could represent industry groupings, investment style (value, growth, small cap.
..), asset class (domestic equities, foreign equities, fixed interest...) or any
thing.
Minimum and maximum weight constraints can be specified by asset group as well a
s by asset. So, for example, you could specify that no more than 15% of a portf
olio should be in technology stocks.
An optimal portfolio -- the portfolio which will provide the maximum return for
the lowest unit of risk -- is then estimated by maximizing the Sharpe ratio. A
minimum variance portfolio and, with the Pro-edition, the portfolio which maxim
izes the geometric mean portfolio return are also produced.