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Jan 28

which portfolio allocation is better?

Posted by abiao at 10:56 | Default | Comments(0) | Reads(1473)

Suppose we want to invest N stocks, each stock is an outcome of a trading strategy or a factor. How to determine the weight investing on each stock i?

Plan A: capital * risk budget / ATR, where risk budget is typically set as 1%~2%, ATR is for average true range;
Plan B: |f(i)|/sum(|f(i)|, where f(i) is the leverage ratio estimated by kelly criterion as mu/var, mu is the expected excess return and var is the variance of return.

Which one is better? stupid


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