FRAPO (version 0.4-1)

PMD: Most Diversified Portfolio

Description

This function returns the solution of the most diversified portfolio (long-only).

Usage

PMD(Returns, percentage = TRUE, optctrl = ctrl(),...)

Arguments

Returns

A rectangular array of return data.

percentage

Logical, whether the weights shall be returned as decimals or percentages (default).

optctrl

Object of class Rcpp_CTRL.

...

Arguments are passed down to cov().

Value

An object of formal class "PortSol".

Details

The optimisation problem is akin to that of a global minimum-variance portfolio, but instead of using the variance-covariance matrix of the asset returns, the correlation matrix is utilised as dispersion measure. The weights are then recovered by rescaling the optimal solution with the assets' standard deviations and normalizing, such that the weights sum to one.

References

Choueifaty, Y. and Coignard, Y. (2008): Toward Maximum Diversification, Journal of Portfolio Management, Vol. 34, No. 4, 40--51.

Choueifaty, Y. and Coignard, Y. and Reynier, J. (2011): Properties of the Most Diversified Portfolio, Working Paper, http://papers.ssrn.com

See Also

"PortSol"

Examples

data(MultiAsset)
Rets <- returnseries(MultiAsset, method = "discrete", trim = TRUE)
PMD(Rets)