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What is Portfolio Selection

Chapter 167
Encyclopedia of Business Analytics and Optimization
Collection of risky assets combined with different weights to provide an acceptable trade-off between return and risk to an investor.
Published in Chapter:
Portfolio Optimization using Rank Correlation
Chanaka Edirisinghe (University of Tennessee, USA) and Wenjun Zhou (University of Tennessee, USA)
Copyright: © 2014 |Pages: 14
DOI: 10.4018/978-1-4666-5202-6.ch167
Abstract
A critical challenge in managing quantitative funds is the computation of volatilities and correlations of the underlying financial assets. We present a study of Kendall's t coefficient, one of the best-known rank-based correlation measures, for computing the portfolio risk. Incorporating within risk-averse portfolio optimization, we show empirically that this correlation measure outperforms that of Pearson's in our out-of-sample testing with real-world financial data. This phenomenon is mainly due to the fat-tailed nature of stock return distributions. We also discuss computational properties of Kendall's t, and describe efficient procedures for incremental and one-time computation of Kendall's rank correlation.
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More Results
Chapter 1
Determining Expected Utility and Entropy Ratio in the Expected Utility-Entropy Decision Model for Stock Selection Depending on Capital Market Development
A collection of risky assets combined with different weights to provide an acceptable trade-off between return and risk to an investor.
Published in Chapter: Determining Expected Utility and Entropy Ratio in the Expected Utility-Entropy Decision Model for Stock Selection Depending on Capital Market Development; From: Recent Applications of Financial Risk Modelling and Portfolio Management
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Chapter 10
Fuzzy Logic in Portfolio Selection: Selected Applications
Set of activities that need to be made so that the investor can form a portfolio of financial investments.
Published in Chapter: Fuzzy Logic in Portfolio Selection: Selected Applications; From: Handbook of Research on Applied AI for International Business and Marketing Applications
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