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Portfolio Optimization

Excel portfolio optimization template for financial asset and business portfolios


The Excel Portfolio Optimization Template establishes optimal capital weightings for portfolios of financial investments or business assets to maximize return and minimize drawdown risk. Risk assessment options and portfolio dynamics can be adjusted to analyze optimization on portfolios based on specific business requirements, extrapolations and preferences. Portfolio management is assisted with technical analysis including indicator parameter optimization with back tested total returns in order to establish optimal trading strategies at individual investment and portfolio levels.

Key features of the Excel Portfolio Optimization template include:
  • A simple and logical data input and work flow is provided with adaptable options accompanied by integrated help information.
  • The input accommodates for up to 100 securities or business cash flow data from which current portfolio weightings, returns and risk correlations are calculated. Historical prices for financial security data can be freely downloaded from the internet with the accompanying market data download solution.
  • The market data solution to download financial security price data also provides detailed return analysis and statistics to compare two securities or securities with benchmark indices. A valuation option compares a discounted cash flow valuation of market securities based on consensus analyst earnings expectations to determine whether stocks are under or overvalued by comparing with market capitalization.
  • Minimum and maximum weighting constraints can be specified for each asset for the optimized portfolio to reflect obligations and capital allocation restrictions.
  • The correlation matrix and portfolio dynamics calculated from the input data can be modified before running the optimization process. This allows for assumptions on future trends and relationships to be accounted for in the optimal portfolio.
  • Portfolio risk for optimization can be based on overall volatility under the Sharpe ratio or downside risk or semi-deviation below a target return under Sortino ratio.
  • Optimization can be made on the Sharpe or Sortino ratio as well as return, risk and the Omega ratio which analyzes the proportion of upside to downside return magnitude. Results are saved for both minimum and maximum levels so that resulting portfolios can be loaded and viewed without requiring additional optimization processes.
  • Additional options allow for flexibility and customization of analysis such as calculating quantities to apply a nominal capital amount equally to investments and exporting results to a standalone files.
  • Existing and optimized portfolios can be specified with both Long and Short positions as either all long, all short or long/short mixed whereby the optimal mix of long and short positions is identified.
  • The comparison between the current and optimized portfolio is displayed graphically as well as unit buy and sell quantities required for each investment in the portfolio.
  • A target return matching the input periodicity can be specified for which the probability of achieving is calculated and displayed using Monte Carlo simulation.
  • The rolling back test function allows the specification of periodic optimizations within the historical time period to analyze the subsequent effects of the optimizations on the portfolio performance.
  • Technical analysis with Buy and Sell signals and back tested total return gain is performed for the overall portfolio and each investment. Configurable technical analysis indicators include: Simple Moving Average (SMA), Rate of Change (ROC), Moving Average Convergence/Divergence (MACD), Relative Strength Index (RSI) and Bollinger Bands.
  • Automatic optimization of technical indicator period constants find the parameters that maximize back tested return at both individual investment and overall portfolio levels.
  • Technical analysis results show the comparison of back tested total returns between no action and signal trading for the total portfolio, current and optimal portfolio as indices as well as the individual investments. These results can be used in conjunction with last observation indicator screening flags and signals to establish optimal trading strategies for the portfolio.
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Requirements
- Excel 97-2013
- Excel 2004 or 2011
USD 26.00
Secure Processing
(Download updated on 2014-10-12)
User Guide

Portfolio Optimization Input and Options

An independent Excel template allows market security data to be automatically downloaded for multiple symbols over long time periods in daily, weekly and monthly frequencies for optimization input. Real-time data can be downloaded and logged at specified time intervals for intraday analysis and trading. Alternatively, other financial or business data can be entered or copied into the input and specified as cash flow values, prices or returns. An investment capital amount can be applied and set equally to each of the investments as a starting allocation for analyzing new strategies. Current asset weighting are otherwise calculated by the number of units in each investment and the last unit price. Short positions are represented by negative units and may coexist with long positions. Portfolio optimization constraint options include the ability to restrict the optimized portfolio to minimum and maximum weightings for each investment. Return volatility can be evaluated under the Sharpe, Sortino and Omega ratio methodologies. The riskless borrowing rate and target return can also be defined for ratio and probability analysis.

Portfolio Correlation Matrix

The correlation matrix for the portfolio is created automatically from the input or downloaded data. Volatility measures calculated within the correlation matrix reflect the risk options specified such as overall standard deviation, downside or semi deviation. Both the downside and upside volatility is calculated and shown for each investment and used in conjunction with correlation in the optimization process. An option can be selected to modify the correlation matrix before the optimization process is executed. If forecast or predicted expected returns are available for the investments, they can be replaced in the correlation matric in order to have the optimization base the weighting on forward looking expectations. If values are modified in the correlation matrix a calculation function is supplied to recalculate benchmark ratios for the optimization process.

Portfolio Optimization Analysis Results

The portfolio optimization results display the weighting changes required in the portfolio in order to achieve the optimal return and risk profile established. Additional analysis displays the key ratio values and components as well as probability analysis for target return thresholds. The number of units for each investment is used to calculate the required buy and sell quantities to rebalance the portfolio to the optimal weightings. Chart visualizations convey the total return comparison over the observation period between the starting the optimized portfolios and benchmark investment. The outer limits of the efficient frontier is displayed with all possible portfolio weighting sets which can be selected and loaded depending on desired risk/return profile preferences. Technical analysis is performed for each investment in the portfolio and consolidated at the portfolio level to report screening flags and signals based on the established technical indicator parameters and last observation values.

Technical Analysis Indicator Optimization

Technical analysis on five key indicators SMA, ROC, MACD, RSI and Bollinger Bands can be run on each investment as well as the starting and optimized portfolios as indices. The period constant parameters can be automatically optimized to maximize back tested total returns on signal trading for individual investments or securities as well as for the entire portfolio to establish one set of parameters that provides the best overall strategy. The results display the value added trading strategy returns and last observation screening flags for each indicator. Technical analysis charting plots buy and sell signals, indicator trends and total return gains for each of the technical indicators. Returns throughout the Excel portfolio optimization template are automatically calculated accordingly, depending on whether long or short positions have been specified.
 
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