{"id":4671,"date":"2023-04-13T10:25:15","date_gmt":"2023-04-13T10:25:15","guid":{"rendered":"https:\/\/prosperity.newai.com.au\/?p=4671"},"modified":"2025-04-13T10:46:00","modified_gmt":"2025-04-13T10:46:00","slug":"news-driven-portfolio-optimization-from-qualitative-analysis-to-quantitative-execution","status":"publish","type":"post","link":"https:\/\/prosperity.newai.com.au\/index.php\/2023\/04\/13\/news-driven-portfolio-optimization-from-qualitative-analysis-to-quantitative-execution\/","title":{"rendered":"News-Driven Portfolio Optimization: From Qualitative Analysis to Quantitative Execution"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"4671\" class=\"elementor elementor-4671\">\n\t\t\t\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-40ff98d elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"40ff98d\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-eff831b\" data-id=\"eff831b\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t\t\t<div class=\"elementor-element elementor-element-eda6428 elementor-widget elementor-widget-text-editor\" data-id=\"eda6428\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t<style>\/*! elementor - v3.6.7 - 03-07-2022 *\/\n.elementor-widget-text-editor.elementor-drop-cap-view-stacked .elementor-drop-cap{background-color:#818a91;color:#fff}.elementor-widget-text-editor.elementor-drop-cap-view-framed .elementor-drop-cap{color:#818a91;border:3px solid;background-color:transparent}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap{margin-top:8px}.elementor-widget-text-editor:not(.elementor-drop-cap-view-default) .elementor-drop-cap-letter{width:1em;height:1em}.elementor-widget-text-editor .elementor-drop-cap{float:left;text-align:center;line-height:1;font-size:50px}.elementor-widget-text-editor .elementor-drop-cap-letter{display:inline-block}<\/style>\t\t\t\t<p>For Day 4&#8217;s manual challenge, I approached it in two parts:<\/p>\n<p><b>Part 1: News Interpretation<\/b><br>I evaluated each product news item based on two key dimensions:<\/p>\n<p>1. Severity (impact magnitude)<br>2. Timeliness (urgency)<\/p>\n<p>Detailed analysis:<\/p>\n<p><b>Product 1:<\/b> Gradual decline with rumors of big buyer<br>\u2192 Probability: High chance of small drop, low chance of surge<br>\u2192 Severity: Low, Timeliness: Weak<\/p>\n<p><b>Product 2:<\/b> Current price at 100, future bulk sales at 80<br>\u2192 Clear 20% downside expected<\/p>\n<p><b>Product 3:<\/b> Preliminary link to Saturday accident<br>\u2192 Severity: Medium, Timeliness: Medium<\/p>\n<p><b>Product 4:<\/b> New fishing rod tax law tomorrow<br>\u2192 Severity: High, Timeliness: Strong<\/p>\n<p><b>Product 5:<\/b> Snowstorm 3 days ago caused pants shortage<br>\u2192 Severity: Medium, Timeliness: Medium<\/p>\n<p><b>Product 6: <\/b>Sales up 32%, retention down 3%<br>\u2192 Severity: Uncertain, Timeliness: Excellent<\/p>\n<p><b>Product 7:<\/b> Official report links iced tea to deaths<br>\u2192 Severity: High, Timeliness: Good<\/p>\n<p><b>Product 8: <\/b>Unclear reference to last week&#8217;s event<br>\u2192 Severity: Unknown, Timeliness: Poor<\/p>\n<p><b>Product 9:<\/b> CEO&#8217;s penguin tailcoat mandate<br>\u2192 Non-actionable item<\/p>\n<p><b>Part 2: Portfolio Optimization<\/b><br>With expected returns estimated from news analysis, I developed the optimization framework:<\/p>\n<p>Transaction cost function (empirically determined):<br>F(x) = x\u00b2\/625<\/p>\n<p>Single investment profit function:<br>PnL(A) = (r% \u00d7 x) &#8211; (x\u00b2\/625)<\/p>\n<p>Optimal position size (unconstrained):<br>x* = 625 \u00d7 r% \/ 2<\/p>\n<p>For multiple investments with total budget \u2264 750:<br>Total PnL = \u03a3(r_i \u00d7 x_i &#8211; x_i\u00b2\/625)<\/p>\n<p><b>Solution approach:<\/b><\/p>\n<p>1. Use individual optima if \u03a3x* \u2264 750<\/p>\n<p>2. Otherwise, solve constrained optimization via Monte Carlo simulation<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>For Day 4&#8217;s manual challenge, I approached it in two parts: Part 1: News InterpretationI evaluated each product news item based on two key dimensions: 1. Severity (impact magnitude)2. Timeliness (urgency) Detailed analysis: Product 1: Gradual decline with rumors of big buyer\u2192 Probability: High chance of small drop, low chance of surge\u2192 Severity: Low, Timeliness: [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":4537,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33],"tags":[],"class_list":["post-4671","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-2023r4"],"acf":[],"_links":{"self":[{"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/posts\/4671","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/comments?post=4671"}],"version-history":[{"count":8,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/posts\/4671\/revisions"}],"predecessor-version":[{"id":4680,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/posts\/4671\/revisions\/4680"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/media\/4537"}],"wp:attachment":[{"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/media?parent=4671"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/categories?post=4671"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prosperity.newai.com.au\/index.php\/wp-json\/wp\/v2\/tags?post=4671"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}