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Risk/Style Factors Covariance Matrix
Shiv Chawla
posted
API Feature Request Portfolio Optimization Risk Management Risk Model

Hi Q Team

Could you please expose/create risk factors covariance matrix? If it's already exposed, could you please point me to it?

Typically, EMA of covariance of factors will suffice. I am not sure if factor returns are exposed via the API at IDE level.

Why do I need it?
To create mean variance portfolio optimization (Variance calculation using used risk factors and loadings). I think Maximize Alpha optimization with risk factor constraints is not the optimal way for portfolio construction. Variance component (via the risk aversion parameter) in objective function will give better handle on portfolio variance.

Let me know what you think!

1 response
Thomas Wiecki

Hi Shiv,

You are correct that having the risk covariance matrix would be very helpful and allow to do mean variance which is preferrable over maximize alpha. Unfortunately it's currently not available but I'll put it in as a feature request.

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.