Portfolio Optimization Risk/Return QC – Positions of Humble Div vs Dividend Glenn

Based upon the Portfolio Optimization Algorithm (POA) discussed earlier and the relevant POA QC use-case (positions of The Dividend Breeder), let’s run the similar algorithm to compare top 5 stock positions of Humble Div (HD) vs Dividend Glenn (DG) in terms of the Risk/Return Ratio (RRR) or RRR1=1/RRR.

Let’s define the following common POA parameters:

benchmark_ = [“^GSPC”,]

start_date_ = “2017-01-01”
end_date_ = “2022-10-01”
number_of_scenarios = 10000

delta_risk = 0.1

Let’s compare the following two portfolios:

HD

portfolio_ = [‘SBUX’, ‘TXN’, ‘AQN’, ‘AAPL’, ‘V’]

DG

portfolio_ = [‘INTC’, ‘MMM’, ‘T’, ‘O’, ‘MO’].

The POA output is as follows:

Humble Div portfolio scenarios & best performer vs market proxy values
HD portfolio scenarios & best performer vs market proxy values
Stock % in Humble Div Portfolio
Stock % in HD Portfolio
Dividend Glenn portfolio scenarios & best performer vs market proxy values
DG portfolio scenarios & best performer vs market proxy values
Stock % in Dividend Glenn Portfolio
Stock % in DG Portfolio

The Table below is the summary of our observations:

start_date_ = “2017-01-01”
end_date_ = “2022-09-30”
HDDGMarket
Risk~0.0138~0.014~0.0127
Return~10%~-6.5%~6%
Return/Risk (RRR1=1/RRR)~7.2~-4.6~4.7

Even though both portfolios and market are within our risk boundaries, we can see that RRR1(HD) > RRR1(Market) >> RRR1(DG). We conclude that HD portfolio is the best performer in this QC test.

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