Giuseppe A. Paleologo - Advanced Portfolio Management

6 Chapter 2: The Problem: From Ideas to Profit 2.1 How to Invest in Your Edge, and Hedge the Rest 2.2 How to Size Your Positions 2.3 How to Learn from Your History 2.4 How to Trade Efficiently 2.5 How to Limit Factor Risk 2.6 How to Control Maximum Losses 2.7 How to Determine Your Leverage 2.8 How to Analyze New Sources of Data Notes

7 Chapter 3: A Tour of Risk and Performance 3.1 Introduction 3.2 Alpha and Beta 3.3 Where Does Alpha Come From? 3.4 Estimate Risk in Advance 3.5 First Steps in Risk Decomposition 3.6 Simple Hedging 3.7 Separation of Concerns 3.8 Takeaway Messages Notes

8 Chapter 4: An Introduction to Multi-Factor Models 4.1 From One Factor to Many 4.2 ★Frequently Asked Questions About Risk 4.3 ★The Machinery of Risk Models 4.4 Takeaway Messages Notes

9 Chapter 5: Understand Factors 5.1 The Economic Environment 5.2 The Trading Environment 5.3 The Company: Valuation Factors 5.4 Takeaway Messages Notes

10 Chapter 6: Use Effective Heuristics for Alpha Sizing 6.1 Sharpe Ratio 6.2 Estimating Expected Returns 6.3 Risk-Based Sizing 6.4 ★Empirical Analysis of the Sizing Rules 6.5 From Ideas to Positions 6.6 Time-Series Risk-Based Portfolio Targeting 6.7 ★Frequently Asked Questions About Performance 6.8 Takeaway Messages Notes

11 Chapter 7: Manage Factor Risk 7.1 Tactical Factor Risk Management 7.2 Strategic Factor Risk Management 7.3 Systematic Hedging and Portfolio Management 7.4 Takeaway Messages Notes

12 Chapter 8: Understand Your Performance 8.1 Factor 8.2 Idiosyncratic 8.3 Trade Events Efficiently 8.4 ★Use Alternative Data! 8.5 ★Frequently Asked Questions About Performance 8.6 Takeaway Messages Notes

13 Chapter 9: Manage Your Losses 9.1 How Stop-Loss Works 9.2 Why a Stop-Loss Policy? 9.3 The Costs and Benefits of Stop-Loss 9.4 Takeaway Messages Notes

14 Chapter 10: ★Set Your Leverage Ratio for a Sustainable Business 10.1 A Framework for Leverage Decisions 10.2 Takeaway Messages Notes

15 Chapter 11: ★★Appendix11.1 Essential Risk Model Formulas 11.2 Diversification 11.3 Mean-Variance Formulations 11.4 Proportional-Rule Formulations 11.5 Generating Custom Factors 11.6 Optimization Formulations 11.7 Tactical Portfolio Optimization 11.8 Hedging Formulations 11.9 Optimal Event Trading Notes

16 References

17 Index

18 End User License Agreement

1 Chapter 3 Table 3.1 Parameter estimates for Synchrony's returns regressed against SP500... Table 3.2 Parameter estimates for Synchrony's returns regressed against SP500... Table 3.3 Probabilities of occurrence of rare events under the normal distrib... Table 3.4 Synchrony's risk parameters for the year 2019. Table 3.5 Synchrony, Wal-Mart and SP500 risk parameters, together with holdin... Table 3.6 Portfolio example, with increasing number of stocks. Each stock has... Table 3.7 Synchrony, Wal-Mart and SP500 risk parameters, together with holdin...

2 Chapter 4Table 4.1 Comparison of different approaches to modeling risk.

3 Chapter 5Table 5.1 Country and industry loadings for a sample of US and Canadian compa...Table 5.2 Performance of stock and hypothetical portfolios, for trend-followi...

4 Chapter 6Table 6.1 Sharpe Ratio for different rules based on predicted volatility, for ...Table 6.2 Sharpe Ratio of different strategies using realized volatility, for ...Table 6.3 Results of simulated strategies using different sizing methods.Table 6.4 Expected returns and NMV.Table 6.5 Sharpe Ratio of unit-GMV and unit-dollar volatility scaling, with o...Table 6.6 Sharpe Ratio of unit-GMV and unit-dollar volatility scaling, with o...

5 Chapter 7Table 7.1 An example of risk decomposition for a technology sector portfolio.Table 7.2 Per-stock Net Market Value (in $M), Marginal Contribution to Factor...Table 7.3 Risk-adjusted losses for keeping a percentage of idio variance belo...Table 7.4 Single-Stock Limit, based on coverage breadth and ratio between ret...

6 Chapter 8Table 8.1 Portfolio Factor exposures.Table 8.2 A list of position/dates/NMV.Table 8.3 A list of position/dates/NMV, rearranged in matrix form.Table 8.4 A list of position / dates / nmv, rearranged in matrix form with eq...Table 8.5 A list of position/date/nmv, rearranged in matrix form.

7 Chapter 9Table 9.1 Efficiency for different values of the PM Sharpe Ratio and the loss...

8 Chapter 10Table 10.1 Ranges for Leverage Ratio. Values of max leverage are highlighted ...

1 Chapter 3 Figure 3.1 Linear regression of Synchrony's (SYF) and Wal-Mart's (WMT) daily... Figure 3.2 Flowchart illustrating the relationships between market, idio and... Figure 3.3 The variance of the sum of two independent random variables is eq...

2 Chapter 4 Figure 4.1 Analogous to Figure 3.2 but for two factors.Figure 4.2 Steps needed to generate a risk model.

3 Chapter 5Figure 5.1 Summary correlation matrix between the factor returns of a US mod...Figure 5.2 Time Series of the country factor cumulative returns, 2007–2017.Figure 5.3 Time Series of the Beta factor cumulative returns, 1998–2020.Figure 5.4 Beta compression phenomenon.Figure 5.5 Time Series of the Volatility factor cumulative returns, 2007–201...Figure 5.6 Time Series of the Short Interest factor cumulative returns, 2007...Figure 5.7 The deleveraging cycle.Figure 5.8 Time Series of the Active Manager Holdings factor cumulative retu...Figure 5.9 Time Series of the medium-term momentum factor cumulative returns...Figure 5.10 Quantile-Quantile plot of the medium-term momentum factor cumula...Figure 5.11 A quartet of value factors.

4 Chapter 6Figure 6.1 Position sizes in a simulated portfolio.Figure 6.2 Realized Sharpe Ratios for sectors-based portfolio for portfolios...Figure 6.3 Realized Sharpe Ratios for sectors-based portfolio for portfolios...Figure 6.4 Realized Sharpe for the case of normally distributed signals.Figure 6.5 Realized Sharpe for the case of buy/sell signals.

5 Chapter 7Figure 7.1 Relationship between percentage idio var and risk-adjusted perfor...

6 Chapter 8Figure 8.1 Performance Attribution example. The figure shows total PnL, idio...Figure 8.2 Performance Attribution example. The figure shows total PnL ex ma...Figure 8.3 Performance Attribution example. The figure shows some of the lar...Figure 8.4 Top: Idiosyncratic performance of equal-sized vs. actual-sized po...Figure 8.5 Liquidity-constrained simulation.Figure 8.6 Flowchart describing the process connecting alternative data to s...

7 Chapter 9Figure 9.1 Deployed Capital as a function of drawdown for Grossman-Zhou opti...Figure 9.2 Impact of stop-loss on performance. We visualize five- and ten-ye...Figure 9.3 Relationship between efficiency of a strategy and stop-loss, base...

1 Cover Page

2 Table of Contents

3 Title Page Advanced Portfolio Management A Quant’s Guide for Fundamental Investors Giuseppe A. Paleologo

4 Copyrigt

5 Dedication To Tofu

6 Begin Reading

7 References

8 Index

9 End User License Agreement

1 iii

2 iv

3 v

4 1

5 2

6 3

7 4

8 5

9 6

10 7

11 8

12 9

13 10

14 11

15 12

16 13

17 14

18 15

19 16

20 17

21 18

22 19

23 20

24 21

25 22

26 23

27 24

28 25

29 26

30 27

31 28

32 29

33 30

34 31

35 32

36 33

37 34

38 35

39 36

40 37

41 38

42 39

43 40

44 41

45 42

46 43

47 44

48 45

49 46

50 47

51 48

52 49

53 50

54 51

55 52

56 53

57 54

58 55

59 56