Rebalance or not to?
Posted: Tue Dec 04, 2007 1:24 am
Sure, ok. A book I found helpful when I started looking at finance was this one. It has a chapter on portfolio optimization and uses Excel for everything.
Sharpe ratio, omega ratio, etc. but these, like anything else I can think of, rely on past returns data. No way to play this game honestly without making bets using some assumptions based on historical data.
I would start with some simple assumptions. In equity, the majority of money is passive indexing of popular indices (S&P500), so perhaps we can assume that a company in the index will be more expensive than the exact same company outside the index? Therefore, when we build our portfolios we want to include stuff outside of S&P500. Simple stuff like this can lead to interesting factors for capital allocation in equities.