Problem 44421. Portfolio diversification: choose your stocks !

Created by jean claude

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{"parts":[{"partUri":"/matlab/document.xml","contentType":"application/vnd.mathworks.matlab.code.document+xml","content":"<?xml version=\"1.0\" encoding=\"UTF-8\"?><w:document xmlns:w=\"http://schemas.openxmlformats.org/wordprocessingml/2006/main\"><w:body><w:p><w:pPr><w:pStyle w:val=\"text\"/><w:jc w:val=\"left\"/></w:pPr><w:r><w:t>we have the returns of 3 stocks for the last 4 years and we have to combine only 2 stocks that are less correlated. Example:</w:t></w:r></w:p><w:p><w:pPr><w:pStyle w:val=\"code\"/></w:pPr><w:r><w:t><![CDATA[stock1=[0.1 0.3 0.22 -.15 ] ;\nstock2=[0.3 0.4 -0.13 -0.22 ];\nstock3=[0.6 -0.3 0.44 0.05];]]></w:t></w:r></w:p><w:p><w:pPr><w:pStyle w:val=\"text\"/><w:jc w:val=\"left\"/></w:pPr><w:r><w:t>So portfolio ={'stock2' 'stock3'} because they are less correlated than any other combination.</w:t></w:r></w:p></w:body></w:document>","relationship":null}],"relationships":[{"relationshipType":"http://schemas.mathworks.com/matlab/code/2013/relationships/document","target":"/matlab/document.xml","relationshipId":"rId1"}]}

<div style = "text-align: start; line-height: 20.4333px; min-height: 0px; white-space: normal; color: rgb(0, 0, 0); font-family: Menlo, Monaco, Consolas, monospace; font-style: normal; font-size: 14px; font-weight: 400; text-decoration: rgb(0, 0, 0); white-space: normal; "><div style="block-size: 144.3px; display: block; min-width: 0px; padding-block-start: 0px; padding-top: 0px; perspective-origin: 407px 72.15px; transform-origin: 407px 72.15px; vertical-align: baseline; "><div style="block-size: 42px; font-family: Helvetica, Arial, sans-serif; line-height: 21px; margin-block-end: 9px; margin-block-start: 2px; margin-bottom: 9px; margin-inline-end: 10px; margin-inline-start: 4px; margin-left: 4px; margin-right: 10px; margin-top: 2px; perspective-origin: 384px 21px; text-align: left; transform-origin: 384px 21px; white-space: pre-wrap; margin-left: 4px; margin-top: 2px; margin-bottom: 9px; margin-right: 10px; "><span style="block-size: auto; display: inline; margin-block-end: 0px; margin-block-start: 0px; margin-bottom: 0px; margin-inline-end: 0px; margin-inline-start: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; perspective-origin: 360px 8px; transform-origin: 360px 8px; unicode-bidi: normal; "><span style="">we have the returns of 3 stocks for the last 4 years and we have to combine only 2 stocks that are less correlated. Example:</span></span></div><div style="background-color: rgb(247, 247, 247); block-size: 61.3px; border-bottom-left-radius: 4px; border-bottom-right-radius: 4px; border-end-end-radius: 4px; border-end-start-radius: 4px; border-start-end-radius: 4px; border-start-start-radius: 4px; border-top-left-radius: 4px; border-top-right-radius: 4px; margin-block-end: 10px; margin-block-start: 10px; margin-bottom: 10px; margin-inline-end: 3px; margin-inline-start: 3px; margin-left: 3px; margin-right: 3px; margin-top: 10px; perspective-origin: 404px 30.65px; transform-origin: 404px 30.65px; margin-left: 3px; margin-top: 10px; margin-bottom: 10px; margin-right: 3px; "><div style="background-color: rgba(0, 0, 0, 0); block-size: 20.4333px; border-bottom-left-radius: 0px; border-bottom-right-radius: 0px; border-end-end-radius: 0px; border-end-start-radius: 0px; border-inline-end-color: rgb(233, 233, 233); border-inline-end-style: solid; border-inline-end-width: 1px; border-inline-start-color: rgb(233, 233, 233); border-inline-start-style: solid; border-inline-start-width: 1px; border-left-color: rgb(233, 233, 233); border-left-style: solid; border-left-width: 1px; border-right-color: rgb(233, 233, 233); border-right-style: solid; border-right-width: 1px; border-start-end-radius: 0px; border-start-start-radius: 0px; border-top-left-radius: 0px; border-top-right-radius: 0px; margin-block-end: 0px; margin-block-start: 0px; margin-bottom: 0px; margin-inline-end: 0px; margin-inline-start: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-block-size: 18px; min-height: 18px; padding-inline-start: 4px; padding-left: 4px; perspective-origin: 404px 10.2167px; transform-origin: 404px 10.2167px; white-space: nowrap; "><span style="block-size: auto; border-inline-end-color: rgb(0, 0, 0); border-inline-end-style: none; border-inline-end-width: 0px; border-inline-start-color: rgb(0, 0, 0); border-inline-start-style: none; border-inline-start-width: 0px; border-left-color: rgb(0, 0, 0); border-left-style: none; border-left-width: 0px; border-right-color: rgb(0, 0, 0); border-right-style: none; border-right-width: 0px; display: inline; margin-inline-end: 45px; margin-right: 45px; min-block-size: 0px; min-height: 0px; padding-inline-start: 0px; padding-left: 0px; perspective-origin: 116px 8.5px; tab-size: 4; transform-origin: 116px 8.5px; unicode-bidi: normal; white-space: pre; margin-right: 45px; "><span style="margin-inline-end: 0px; margin-right: 0px; ">stock1=[0.1 0.3 0.22 -.15 ] ;</span></span></div><div style="background-color: rgba(0, 0, 0, 0); block-size: 20.4333px; border-bottom-left-radius: 0px; border-bottom-right-radius: 0px; border-end-end-radius: 0px; border-end-start-radius: 0px; border-inline-end-color: rgb(233, 233, 233); border-inline-end-style: solid; border-inline-end-width: 1px; border-inline-start-color: rgb(233, 233, 233); border-inline-start-style: solid; border-inline-start-width: 1px; border-left-color: rgb(233, 233, 233); border-left-style: solid; border-left-width: 1px; border-right-color: rgb(233, 233, 233); border-right-style: solid; border-right-width: 1px; border-start-end-radius: 0px; border-start-start-radius: 0px; border-top-left-radius: 0px; border-top-right-radius: 0px; margin-block-end: 0px; margin-block-start: 0px; margin-bottom: 0px; margin-inline-end: 0px; margin-inline-start: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-block-size: 18px; min-height: 18px; padding-inline-start: 4px; padding-left: 4px; perspective-origin: 404px 10.2167px; transform-origin: 404px 10.2167px; white-space: nowrap; "><span style="block-size: auto; border-inline-end-color: rgb(0, 0, 0); border-inline-end-style: none; border-inline-end-width: 0px; border-inline-start-color: rgb(0, 0, 0); border-inline-start-style: none; border-inline-start-width: 0px; border-left-color: rgb(0, 0, 0); border-left-style: none; border-left-width: 0px; border-right-color: rgb(0, 0, 0); border-right-style: none; border-right-width: 0px; display: inline; margin-inline-end: 45px; margin-right: 45px; min-block-size: 0px; min-height: 0px; padding-inline-start: 0px; padding-left: 0px; perspective-origin: 120px 8.5px; tab-size: 4; transform-origin: 120px 8.5px; unicode-bidi: normal; white-space: pre; margin-right: 45px; "><span style="margin-inline-end: 0px; margin-right: 0px; ">stock2=[0.3 0.4 -0.13 -0.22 ];</span></span></div><div style="background-color: rgba(0, 0, 0, 0); block-size: 20.4333px; border-bottom-left-radius: 0px; border-bottom-right-radius: 0px; border-end-end-radius: 0px; border-end-start-radius: 0px; border-inline-end-color: rgb(233, 233, 233); border-inline-end-style: solid; border-inline-end-width: 1px; border-inline-start-color: rgb(233, 233, 233); border-inline-start-style: solid; border-inline-start-width: 1px; border-left-color: rgb(233, 233, 233); border-left-style: solid; border-left-width: 1px; border-right-color: rgb(233, 233, 233); border-right-style: solid; border-right-width: 1px; border-start-end-radius: 0px; border-start-start-radius: 0px; border-top-left-radius: 0px; border-top-right-radius: 0px; margin-block-end: 0px; margin-block-start: 0px; margin-bottom: 0px; margin-inline-end: 0px; margin-inline-start: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-block-size: 18px; min-height: 18px; padding-inline-start: 4px; padding-left: 4px; perspective-origin: 404px 10.2167px; transform-origin: 404px 10.2167px; white-space: nowrap; "><span style="block-size: auto; border-inline-end-color: rgb(0, 0, 0); border-inline-end-style: none; border-inline-end-width: 0px; border-inline-start-color: rgb(0, 0, 0); border-inline-start-style: none; border-inline-start-width: 0px; border-left-color: rgb(0, 0, 0); border-left-style: none; border-left-width: 0px; border-right-color: rgb(0, 0, 0); border-right-style: none; border-right-width: 0px; display: inline; margin-inline-end: 45px; margin-right: 45px; min-block-size: 0px; min-height: 0px; padding-inline-start: 0px; padding-left: 0px; perspective-origin: 112px 8.5px; tab-size: 4; transform-origin: 112px 8.5px; unicode-bidi: normal; white-space: pre; margin-right: 45px; "><span style="margin-inline-end: 0px; margin-right: 0px; ">stock3=[0.6 -0.3 0.44 0.05];</span></span></div></div><div style="block-size: 21px; font-family: Helvetica, Arial, sans-serif; line-height: 21px; margin-block-end: 9px; margin-block-start: 10px; margin-bottom: 9px; margin-inline-end: 10px; margin-inline-start: 4px; margin-left: 4px; margin-right: 10px; margin-top: 10px; perspective-origin: 384px 10.5px; text-align: left; transform-origin: 384px 10.5px; white-space: pre-wrap; margin-left: 4px; margin-top: 10px; margin-bottom: 9px; margin-right: 10px; "><span style="block-size: auto; display: inline; margin-block-end: 0px; margin-block-start: 0px; margin-bottom: 0px; margin-inline-end: 0px; margin-inline-start: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; perspective-origin: 291.5px 8px; transform-origin: 291.5px 8px; unicode-bidi: normal; "><span style="">So portfolio ={'stock2' 'stock3'} because they are less correlated than any other combination.</span></span></div></div></div>

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Last Solution submitted on Feb 21, 2023

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David Verrelli on 1 Dec 2017

It would be wise to add additional test cases.
It would be helpful to provide an example in the problem statement.
The problem statement should not commence with a space.

jean claude on 2 Dec 2017

helpful comments, i did add some tests and one example. good lucks!

Rafael S.T. Vieira on 10 Sep 2020

The less correlated stocks are the ones closest to zero and not to minus one (a correlation of 1 or -1 is still a strong correlation). Please, fix the problem description, what the problem actually wants are stocks that are closest to being inversely correlated.

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Problem 44421. Portfolio diversification: choose your stocks !

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Problem 44421. Portfolio diversification: choose your stocks !

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