What is Portfolio Optimization?

Portfolio optimization is the process of creating a portfolio of assets that provides the best possible return for a given level of risk. This tool uses Modern Portfolio Theory (MPT) to find the optimal allocation weights for your chosen assets based on their historical returns, volatilities, and correlations.

How to Interpret the Results

• Allocation Weights: The pie chart shows the ideal percentage of your portfolio that should be allocated to each asset to meet your selected objective (e.g., maximizing the Sharpe Ratio).
• Risk Contribution: This bar chart shows how much each individual asset contributes to the overall portfolio's risk. An asset might have a small weight but still contribute significantly to risk if it is highly volatile.
• Backtested Performance: This chart compares the historical performance of your optimized portfolio against an equal-weight portfolio and a benchmark (like SPY), showing how the optimization would have performed in the past.

Practical Applications

• Construct a diversified, risk-managed portfolio from a list of potential investments.
• Rebalance an existing portfolio to improve its risk-adjusted returns.
• Understand the trade-offs between maximizing returns, minimizing risk, and equal-weighting.