Is the forty (40) stock portfolio optimized if one assigns 2.5% to each stocks? Follow the optimized-momentum analysis to answer this question.
Efficient Frontier: A quick glance at the Efficient Frontier graph shows us that equal allocation to each stock does not provide the most optimized portfolio. This does not come as a surprise. The equal allocation was done for simplicity just to see how the QPP analysis looking in a prior blog post. The optimizer-momentum software tool provides us with more information as to how we might improve the Return/Risk ratio for a 40-stock portfolio.
Keep in mind that I placed a few constraints on the optimizer. For example, in this run I limited the percentage to be held in any one stock to be 10%.
Efficient Frontier for 40 Stock Portfolio
Stock Rankings: Below is the ranking of the 40 stocks. Note that a 50% weight was assigned to the last three months of performance and 30% to the last six months (181 days). The final 20% is allocated to volatility as we desire securities that are not too volatile. I used the Exponential Moving Average for the performance calculations so the most recent price changes receive the greatest weight. This is a rather new feature added to the ranking worksheet.
Buy-Hold-Sell Recommendations: Below are the Buy-Hold-Sell Recommendations. I already applied some of the recommendations in this screenshot, although they are not reflected in the Efficient Frontier graph.
Comments on this type of analysis is most welcome.