Portfolio Composition Forecasting

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Portfolio Composition Forecasting

Gareth McEwan
Hi All

I was hoping someone could point me in the right direction.

Is there an R-package (or other software) that can be used to forecast the
next period's portfolio composition?  There are many portfolio optimization
packages, but this is not the same question.  Say I take the past* x*
periods, each period holds the percentage composition of an investment
portfolio (sums to 1); the composition of assets will contain key assets
held (or increased/decreased) through periods, but new assets will be added
to the portfolio over time, while some holdings will be dropped, so we will
have nuisance here.  I would like to model the past* x* periods, accept
this mentioned error, and forecast or simulate for* x+1* period.

Does anyone have any experience with this, or have any pointers within the
broader domain of statistics?

Many thanks in advance,
Gareth

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Re: Portfolio Composition Forecasting

braverock
On Sat, 2020-02-29 at 09:06 -0500, G Mac wrote:

> Is there an R-package (or other software) that can be used to
> forecast the next period's portfolio composition?  There are many
> portfolio optimization packages, but this is not the same
> question.  Say I take the past* x* periods, each period holds the
> percentage composition of an investment portfolio (sums to 1); the
> composition of assets will contain key assets held (or
> increased/decreased) through periods, but new assets will be
> added to the portfolio over time, while some holdings will be
> dropped, so we will have nuisance here.  I would like to model the
> past* x* periods, accept this mentioned error, and forecast or
> simulate for* x+1* period.
>
> Does anyone have any experience with this, or have any pointers
> within the broader domain of statistics?
>

Itr seems to me tomorrows portfolio is the same as today's portfolio
except for organic change in weights caused by market price
fluctuations, or by a rebalancing event.  The 'forecast' is the
standard naive forecast: today's portfolio will still be held tomorrow,
unless you rebalance.

I don't see any value in a simulation from the prior holdings.
Portfolios are rebalanced for some business reason, and those reasons
are usually pretty well understood, and not the result of a random draw
from some distribution of prior holdings.

What am I missing?

Regards,

Brian

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Re: Portfolio Composition Forecasting

Adam Ginensky
I have a very similar view to Brian.  I also think of weights as something
that is a deterministic function of the actual prices that have been
realized.  So if one forecasts tomorrows prices, forecasting tomorrows
weights would follow.  What am I missing ?

On Sat, Feb 29, 2020 at 5:41 PM Brian G. Peterson <[hidden email]>
wrote:

> On Sat, 2020-02-29 at 09:06 -0500, G Mac wrote:
> > Is there an R-package (or other software) that can be used to
> > forecast the next period's portfolio composition?  There are many
> > portfolio optimization packages, but this is not the same
> > question.  Say I take the past* x* periods, each period holds the
> > percentage composition of an investment portfolio (sums to 1); the
> > composition of assets will contain key assets held (or
> > increased/decreased) through periods, but new assets will be
> > added to the portfolio over time, while some holdings will be
> > dropped, so we will have nuisance here.  I would like to model the
> > past* x* periods, accept this mentioned error, and forecast or
> > simulate for* x+1* period.
> >
> > Does anyone have any experience with this, or have any pointers
> > within the broader domain of statistics?
> >
>
> Itr seems to me tomorrows portfolio is the same as today's portfolio
> except for organic change in weights caused by market price
> fluctuations, or by a rebalancing event.  The 'forecast' is the
> standard naive forecast: today's portfolio will still be held tomorrow,
> unless you rebalance.
>
> I don't see any value in a simulation from the prior holdings.
> Portfolios are rebalanced for some business reason, and those reasons
> are usually pretty well understood, and not the result of a random draw
> from some distribution of prior holdings.
>
> What am I missing?
>
> Regards,
>
> Brian
>
> _______________________________________________
> [hidden email] mailing list
> https://stat.ethz.ch/mailman/listinfo/r-sig-finance
> -- Subscriber-posting only. If you want to post, subscribe first.
> -- Also note that this is not the r-help list where general R questions
> should go.
>

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