What-If Optimo Could Look Into the Future of Portfolios. And the Past, too

After talking about the views feature in Optimo, it’s time to focus on another aspect of it: the what-if analysis features.

Ex Ante, Ex Post

Optimo allows to perform what-if analysis of financial portfolios to monitor the risk value either ex ante and ex post, that is, looking at the future or into the past, to evaluate portfolio performances.

It’s easy to verify the different risk contribution of different elements of a certain asset class with Optimo, or comparing performances of different portfolios.

Should Corrections Be Needed

In every case, we can come up with several measurements of the effectiveness of a portfolio and see if taking steps to improve the performance. Among the many values Optimo can gauge, there are time weighted rate of returns and different risk measures, that is, maximum volatility, draw down (the biggest cumulative loss in a certain time range), Value at Risk (VaR), expected shortfall (also Conditional Value at Risk, CVar) and so on.

However, a quite interesting use of Optimo is the what-if analysis.

What-If: All-Around Simulations

Given a portfolio in Optimo, it is possible simulate the behavior any different asset class composition, also by adding items that aren’t in the portfolio, or removing items that are inside instead; this allows to clearly see the risk impact of every choice on the portfolio returns.

A backtesting system offers the chance of simulating the future behavior of the portfolio by considering the past performances and keeping the same weights of components of the asset class.

Parametric or Non-parametric?

The approach of Optimo to what-if analysis and portfolio performance evaluation can be either parametric or non-parametric: this widens the available choice of options to judge how good a portfolio is, or can be.

The parametric approach calculates risk by factorization of the complete instruments set on a stricter set of variables, which are usually some selected factors like asset class or benchmark or significant financial items (e. g. Yields, etc.). The non-parametric approach is used to get measures of portfolios straight on the empirical distributions of the single securities without through a variance-covariance matrix. The method allows a smarter and effective pricing evaluation of portfolios.

See you soon for other tidbits about Optimo: a great tool for building optimal model portfolios!

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