Optimization backtest

Intermediate Portfolio Analysis in R

Ross Bennett

Instructor

Optimization backtest: execution

# Run the optimization with periodic rebalancing
opt_base <- optimize.portfolio.rebalancing(R = returns,
                    optimize_method = "ROI",
                    portfolio = base_port_spec,
                    rebalance_on = "quarters",
                    training_period = 60,
                    rolling_window = 60)

# Calculate portfolio returns
base_returns <- Return.portfolio(returns,    
                                   extractWeights(opt_base))
colnames(base_returns) <- "base"

Optimization backtest: analysis

# Chart the optimal weights
chart.Weights(opt_base)

Plot of time vs. weights of portfolio

Optimization backtest: analysis

# Merge benchmark and portfolio returns
ret <- cbind(benchmark_returns, base_returns)

# Annualized performance
table.AnnualizedReturns(ret)

                          benchmark   base
Annualized Return            0.0775 0.0772
Annualized Std Dev           0.1032 0.0436
Annualized Sharpe (Rf=0%)    0.7509 1.7714

Optimization backtest: refine constraints

Plot of time vs. weights of portfolio

# Make a copy of the portfolio specification
box_port_spec <- base_port_spec

# Update the constraint
box_port_spec <- add.constraint(portfolio = box_port_spec, 
                                type = "box",
                                min = 0.05, max = 0.4, 
                                indexnum = 2)

# Backtest
opt_box <- optimize.portfolio.rebalancing(R = returns,
                                          optimize_method = "ROI",
                                          portfolio = box_port_spec,
                                          rebalance_on = "quarters",
                                          training_period = 60,
                                          rolling_window = 60)

# Calculate portfolio returns
box_returns <- Return.portfolio(returns, extractWeights(opt_box))
colnames(box_returns) <- "box"

Optimization backtest: analysis refined constraints

# Chart the optimal weights
chart.Weights(opt_box)

Plot of time vs. weights of portfolio

Optimization backtest: analysis refined constraints

# Merge box portfolio returns
ret <- cbind(ret, box_returns)

# Annualized performance
table.AnnualizedReturns(ret)

                          benchmark   base    box
Annualized Return            0.0775 0.0772 0.0760
Annualized Std Dev           0.1032 0.0436 0.0819
Annualized Sharpe (Rf=0%)    0.7509 1.7714 0.9282

Let's practice!

Intermediate Portfolio Analysis in R