• Dependence and Risk Management

    The basics of quantitative portfolio selection

    The seminal work of Harry Markowitz from the 1950s is the first scientific approach towards portfolio selection based on the idea of diversification, constituting a quantitative setup whose core ideas are still prominent in today’s financial industry. The content of the present article consists of three parts. First, the Markowitz theory is summarized, with an emphasis on its relation with the concept of the Sharpe ratio. Second, its limitations and potential generalizations are discussed. Third, it is demonstrated in the particular case of our fund XAIA Credit Curve Carry how the related concept of Sharpe ratio maximization can assist with managing daily portfolio adjustments.