import numpy as np
# Puzzle:
# Consider a portfolio of N assets with known expected returns (mu) and a covariance matrix (cov_matrix).
# You have a target return (target_return) that you want to achieve.
# Find the optimal weights (w) for the assets to achieve the target return, subject to the constraint
# that the sum of weights must be equal to 1.
# Define the parameters
N = 3 # Number of assets
target_return = 0.05 # Target portfolio return
# Example expected returns and covariance matrix (replace with real data)
mu = np.array([0.03, 0.05, 0.08])
cov_matrix = np.array([[0.0004, 0.0002, 0.0001],
[0.0002, 0.0003, 0.00015],
[0.0001, 0.00015, 0.00025]])
# Define the objective function for the optimization problem
def objective(weights, mu):
return -np.dot(weights, mu)
# Define the constraint for the weights summing to 1
def constraint(weights):
return np.sum(weights) - 1
# Set up the optimization problem
initial_weights = np.ones(N) / N # Initial equal weights for each asset
constraints = ({'type': 'eq', 'fun': constraint})
bounds = tuple((0, 1) for asset in range(N))
# Solve the optimization problem
from scipy.optimize import minimize
result = minimize(objective, initial_weights, args=(mu,), method='SLSQP', bounds=bounds, constraints=constraints)
# Print the results
optimal_weights = result.x
optimal_portfolio_return = -result.fun
print("Optimal Weights:", optimal_weights)
print("Optimal Portfolio Return:", optimal_portfolio_return)
Mia Alissi
The code you provided is a good start for portfolio optimization. It uses the scipy.optimize.minimize function to find the optimal weights of assets in a portfolio that maximize the portfolio return, subject to the constraint that the weights sum to 1.
Here's a brief explanation of the code:
The objective function is defined as the negative dot product of the weights and the expected returns. This is because scipy's minimize function minimizes the objective function, and we want to maximize the portfolio return.
The constraint function ensures that the sum of the weights is equal to 1.
The bounds ensure that each weight is between 0 and 1.
The initial_weights are set to be equal for each asset.
The minimize function is then called with the objective function, the initial weights, the method 'SLSQP' (Sequential Least Squares Programming), the bounds, and the constraints.
The optimal weights and the optimal portfolio return are then printed out.
This code assumes that you have the expected returns and the covariance matrix for the assets. If you don't have these, you can calculate them from historical price data. For example, you can use the pandas.DataFrame.pct_change method to calculate the returns, and the pandas.DataFrame.cov method to calculate the covariance matrix.
Here's an example of how you can do this:
Remember that this is a simple example and real-world portfolio optimization can be much more complex, taking into account factors such as transaction costs, risk tolerance, and other constraints. For more advanced portfolio optimization techniques, you can refer to the QuantConnect documentation and the QuantConnect forum.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Mouhamad Abushaqra
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
To unlock posting to the community forums please complete at least 30% of Boot Camp.
You can continue your Boot Camp training progress from the terminal. We hope to see you in the community soon!