PMD function

Most Diversified Portfolio

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

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().

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.

Returns

An object of formal class "PortSol".

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

Author(s)

Bernhard Pfaff

Note

The optimisation is conducted by calling cccp().

See Also

"PortSol"

Examples

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