I'm working on optimising my portfolio and have been reading up on MPT and portfolio optimisation. It seems the generally accepted measure of risk is straight volatility, such as the standard deviation of daily returns. However with SD I will get the same value regardless of whether the daily returns are positive or negative. It treats profits and losses equally. I'm looking to minimise losses and maximise profits. They are not equal to me.
I'm not the first to realise this and I know there are loss-only measures like Ulcer Index and VaR. Are these valid measures to use for portfolio optimisation? Are there others I'm unaware of?
Alternatively, would it be valid to only take the SD of the negative daily asset returns only, gracefully ignoring the profits when measuring risk?
Submitted August 18, 2017 at 04:52AM by kennethjor http://ift.tt/2vOMWmI
