Following the mean-variance model [attributed to Markowitz (1959)], the optimal hedge ratio that maximises expected utility for infinite degree of risk aversion and also minimises portfolio variance
, is: (5)
While conventional portfolio design often follows the Modern Portfolio Theory, which identifies optimal portfolios via minimization of the total portfolio variance
, its patented technique designs portfolios are based on the minimization of portfolio complexity.
The change in portfolio variance
is dependent on the size and value of the position holdings.
The second section analytically presents the three key concepts for tracking indices: tracking error variance, excess return, and portfolio variance
Changes in the Components of the Industry Portfolio Variance
p] = the portfolio variance
for the industrial mix of a region
i], and decreasing in scaled portfolio variance
depends on the variance of each asset and also the correlations among themselves.
To create the efficient frontier we specified a return and had solver minimize the portfolio variance
by changing the weight invested in each stock.
77 as portfolio variance
as compared to the plain variance of 132.
= [summation over n/i=1] [[sigma].
The optimal portfolio variance
is then given by x*'[Sigma]x*.