Frequently Asked Questions
These are some of the more frequent questions that we receive regarding OptiFolio. We encourage you to download a demo and try it for yourself! You will discover that, even though it includes a very sophisticated mathematical and statistical engine, it is a very user-friendly and surprisingly fast application.
MP Theory means Modern Portfolio Theory. It was proposed by professor Harry Markowitz and he was awarded the Nobel prize in recognition of the importance of this model. The Modern Portfolio Theory is a mathematical formulation that allows an investor to identify the best combination of financial assets required to maximize expected return and minimize total risk. This model is closely related to the concepts of Security Selection and Asset Allocation.
Security Selection is the process used to determine which assets and in what proportions will be included in a portfolio. This analysis has to take into account the expected return of the assets, their expected risk, and the expected correlations among the assets' returns. Usually a measure of risk-adjusted return is optimized in order to find the optimum combination of assets. The best-known measure of risk-adjusted return is the Sharpe Ratio, defined as the Expected Return of the portfolio minus the risk-free rate, divided by the expected standard deviation of the portfolio returns.
Asset allocation is the process used to determine how to combine asset classes (e.g. stocks and bonds) in order to obtain a suitable combination given the investor's preferences and risk tolerance.
CVaR stands for Conditional Value-at-Risk, which is an evolution of the Value-at-Risk (VaR) model. Both are very sophisticated tools to measure the market risk of a portfolio. The main concept behind VaR is that risk is only associated to possible losses (not gains). CVaR is calculated based on the expected value of the lossed that exceed VaR. One key practical aspect is that you can always optimize (i.e. minimize) CVaR, while this is not true for VaR.
You need a computer running MS Windows XP or higher, with at least 2Gb of memory and 16-bits video. The program is self-contained, so you don't need to install any additional library or framework. In order to read MS Excel files, you need to have MS Excel XP or higher installed.
Yes, you can! You can download historical prices for all the assets contained in the S&P 500 index. Currently, you can also download prices for a much broader set of assets from the Yahoo Finance database.
The program comes with a very detailed User's manual that includes images and explanations of all the interfaces and options offered by the program.
OptiFolio is a desktop application, so it has been designed to be installed and executed on one computer (real or virtual) per license.