Markowitz allocation

The Markowitz portfolio allocation is one of the most well-known portfolio-allocation approaches in modern algorithmic/quantitative trading and is based on modern portfolio theory. The idea here is to take the co-variance between the returns of all the trading strategies in our portfolio and account for that when allocating risk to individual trading strategies to minimize portfolio variance while maximizing portfolio returns. It is a convex optimization problem and has many well-known and well-understood techniques to solve. For a given level of portfolio variance, it can find the best allocation scheme to maximize portfolio returns by building what is known as an efficient frontier curve, which is the curve of optimal ...

Get Learn Algorithmic Trading now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.