Treynor-Black Variable Portfolio
Posted: Wed Apr 24, 2013 1:16 pm
http://cfaleveltwo.wordpress.com/2008/0 ... ack-model/
(Although the Wikipedia entry for Treynor Black (TB) contains more detailed information, I prefer the above guide written in "plain" language..)
It sounds great in theory, although I'm not sure about its effectiveness in managing a Variable Portfolio according to HB's philosophies.. you would use the Permanent Portfolio as the "Passive/Market Portfolio" and the Variable Portfolio as the "Active Portfolio" which is presumed to offer a better return vs. risk than the Permanent (Passive) Portfolio.
You would need to estimate the amount of unsystematic risk and excess return (with respect to the PP) of each security in your VP. Generally speaking, the higher the alpha and the lower the unsystematic risk, the higher you'd want the weight of the VP security.
Just want to throw this idea if anyone has even remotely tried anything similar.. if not, I might post some results once I find the time to crunch the numbers..
(Although the Wikipedia entry for Treynor Black (TB) contains more detailed information, I prefer the above guide written in "plain" language..)
It sounds great in theory, although I'm not sure about its effectiveness in managing a Variable Portfolio according to HB's philosophies.. you would use the Permanent Portfolio as the "Passive/Market Portfolio" and the Variable Portfolio as the "Active Portfolio" which is presumed to offer a better return vs. risk than the Permanent (Passive) Portfolio.
You would need to estimate the amount of unsystematic risk and excess return (with respect to the PP) of each security in your VP. Generally speaking, the higher the alpha and the lower the unsystematic risk, the higher you'd want the weight of the VP security.
Just want to throw this idea if anyone has even remotely tried anything similar.. if not, I might post some results once I find the time to crunch the numbers..