Portfolio construction and risk
4 readings
Connect diversification, common risk factors, investor views, and the properties of a risk measure.
- Who this is for
- Readers with covariance matrices and elementary optimisation who want to understand portfolio research.
- What you will work towards
- Compare portfolio allocations under changing estimates and explain the risk each allocation concentrates.
Before you start
Use these SMQ lessons to check the ideas the readings assume. Lesson pages show the outline and how to access the full lesson.
- Expectation, Mean, and Variance
Read expected payoffs and risk estimates in the same mathematical language.
- Mean-Variance Optimisation
Translate expected returns and covariance estimates into a constrained portfolio.
Read in this order
Portfolio Selection
Start with the diversification argument behind mean–variance portfolios.
Common risk factors in the returns on stocks and bonds
Replace an asset-by-asset view of risk with common factors.
A step-by-step guide to the Black-Litterman Model
Study how a portfolio model incorporates explicit views.
Coherent Measures of Risk
Check what it means to aggregate risk consistently.
Continue your study on SMQ
- Risk Models: APT and Factor Structure
Read factor exposures as common sources of portfolio risk.
- Coherent Risk Measures: Axioms and the Failure of VaR
Understand which properties a risk measure should satisfy and where VaR can fail.
Follow the connected lessons, worked examples, and exercises in the app. Full lesson access depends on the topic and your membership.
Continue with portfolio management