Optimization result - mean return and stdev - is that for one period only ?

Excel Help for Optimization Result - Mean Return And Stdev - Is That For One Period Only ? in Excel Portfolio Optimization Template

Optimization Result - Mean Return And Stdev - Is That For One Period Only ?

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	Hi, As written in title.. if my input data was entered for every year.. then is the result/chart tab where it gives the mean and standard deviation of the efficient portfolio a prediction for this next year ? Also, is this optimal coordinates of return and standard deviation calculated using the Monte Carlo ? thanks.
	Posted by illumintai on 27 Feb 2011

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	Interpreting the optimization results Rate this: (3/5 from 1 vote) The mean return and standard deviation of the optimized portfolio represents the frequency of the input data.  If the input data is annual, then the results are annual return and risk (standard deviation).  If the input data id monthly, then the results are monthly.  To annualize non annual results we need to multiply the return by the number of periods in a year (e.g. 12 for monthly) and multiply the standard deviation by the square root of of the number of periods in a year (e.g. SQRT(12) for monthly). The results are based solely on the input data and so the assumption is that the same relationships between investments in the portfolio will be maintained in the future.  To relax this assumption and apply predictive relationships for the portfolio in the future, we can modify the correlation matrix accordingly before the optimization process is executed. The optimization process used an iterative process to test portfolio weighting scenarios in order to find the portfolio closest to the efficient frontier under the Sharpe ration (or Sortino ration under downside risk). Monte Carlo simulation is employed to calculate the probability distribution and values for achieving the target return in the portfolio.
	Excel Business Forums Administrator
	Posted by Excel Helper on 27 Feb 2011

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