A step-by-step guide to build 3 optimized portfolios with a few...
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Feb 15, 2024
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A step-by-step guide to build 3 optimized portfolios with a few lines of Python:
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Here’s how skfolio helps:
• Unified library for building optimized portfolios
• Built in Python code to take care of the maths
• Built on top of scikit-learn to leverage ML
This thread will walk you through how to use it:
• Unified library for building optimized portfolios
• Built in Python code to take care of the maths
• Built on top of scikit-learn to leverage ML
This thread will walk you through how to use it:
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We’ll use scikit-learn for creating data splits, skfolio for optimizing the portfolios, and OpenBB for data.
We’ll do our analysis on a list of sector-based ETFs.
We’ll do our analysis on a list of sector-based ETFs.
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Download the historic price data, manipulate the DataFrame to use with skfolio, and split the data into training and testing sets.
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The next step is to fit different models to the data.
We’ll use skfolio to create three separate portfolios: maximum diversification, equal weighted, and random weighted.
We’ll use skfolio to create three separate portfolios: maximum diversification, equal weighted, and random weighted.
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We can use skfolio to predict the portfolio weights for each of the weighting methods.
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The result is a visualization of the weights of the sector ETFs for each of the portfolios.
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Generate the cumulative returns of each strategy to visualize how they performed over the analysis period.
This is a quick way to easily assess the performance of the portfolios.
This is a quick way to easily assess the performance of the portfolios.
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The portfolio with the maximum diversification underperforms both the equally weighted and randomly weighted portfolios.
You might conclude that being heavily weighted in XLU (utilities) was a drag on the overall performance of the strategy.
You might conclude that being heavily weighted in XLU (utilities) was a drag on the overall performance of the strategy.
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While skfolio presents a the cumulative returns of each portfolio, we need to apply periodic rebalancing to better represent a real investment strategy.
As a next step, plug skfolio into your favorite backtesting library and rebalance every month.
How do the returns change?
As a next step, plug skfolio into your favorite backtesting library and rebalance every month.
How do the returns change?
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A step-by-step guide to build 3 optimized portfolios with a few lines of Python:
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