Skip to content

portfolioFrontier nonsense

2 messages · ssmith88 at umd.edu, Diethelm Wuertz

Original
ssmith88 at umd.edu
# 
I'm attempting a very basic optimization with fPortfolio using the default constraints.  Yet, the portfolio frontier that is generated is nonsense.  As the return increases, the risk decreases!  Any help would be greatly appreciated.  Below is my code:



library(fPortfolio)
#Gets date,price, and return data from excel spreadsheet
#------------------------------------------------------------
sp500Reuters<-read.csv("C:\\data\\sp500Reuters.csv")
spgsciReuters<-read.csv("C:\\data\\spgsciReuters.csv")
msciWorldReuters<-read.csv("C:\\data\\msciWorldReuters.csv")
cshfReuters<-read.csv("C:\\data\\cshfReuters.csv")

# Creates return Matrix, timeDate object, and timeSeries object
#------------------------------------------------------------
returnMatrix<-cbind(sp500Reuters[(2:185),3],msciWorldReuters[(2:185),3],spgsciReuters[(2:185),3],cshfReuters[(2:185),3])
colNames<-c("US Equity","World Equity","Commodities","Hedge Fund")
colnames(returnMatrix)<-colNames
returnSeries<-as.timeSeries(returnMatrix)
timeObject<-timeSequence(from="1994-1-31",to="2009-4-30",by="month",format="%Y-%m-%d",FinCenter="GMT")
dataSet<-timeSeries(returnSeries,timeObject,units=NULL,format=NULL,zone="GMT",FinCenter="GMT")
------------------------------------------------------------
# Creates portfolioData object and generates frontier
portfolioData<-portfolioData(dataSet,spec=portfolioSpec())
newFrontier<-portfolioFrontier(portfolioData)

#Note that I've also tried 
newFrontier<-portfolioFrontier(dataSet)

In both cases I get an output such as the following:

Target Return and Risks:
     mean     mu    Cov  Sigma   CVaR    VaR
1  0.0380 0.0380 0.5285 0.5285 1.3375 0.9721
13 0.0500 0.0500 0.4391 0.4391 1.0920 0.7691
25 0.0620 0.0620 0.3609 0.3609 0.8590 0.5488
37 0.0740 0.0740 0.3014 0.3014 0.6797 0.3874
50 0.0869 0.0869 0.2732 0.2732 0.6036 0.4280


Thanks for any help in advance.
Diethelm Wuertz
#
ssmith88 at umd.edu wrote:
Let me start with a comparison: When you fill up your Ferrari with water 
instead
of gas, then the "return in speed decreases" and the "risk of damage 
increases".
This is a problem arising from the kind of fuel you use and not of the 
Ferrari.

I think it is a data problem - when you send me your data, I will try to 
fnd out
what was possibly going wrong.

Kind regards
Diethelm