Keyword Description
The value you assign to this variable conveys to Mechanica your preference for how much goodness (utility) you attach to holding more rather than fewer positions in a portfolio. Assigning a value of zero causes the MVO routine to find the specific securities and their weights in the portfolio which in combination yields the highest Sharpe ratio for the portfolio. Very often this routine will select a small number of securities (2 or 3) to hold in the optimum Sharpe ratio portfolio. Users may wish to force more diversification than that small number of securities affords. So to gain an added perceived benefit they would assign a value higher than zero. The higher the value assigned, the more value the optimization routine places on having additional positions beyond what produces the absolute best Sharpe ratio.
Class
Expression
Where Legal
Resources |
Entry Logic |
Exit Logic |
Initial Size |
Resize (Pre-Category) |
Resize (Category-Level) |
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Syntax
UTILITY
Example
Sample code
UTILITY = 10 'tell the optimizer that we want to hold more positions than afforded by best Sharpe ratio
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The following formula is used to add additional weight to the plain Sharpe ratio based upon the value user assigns to UTILITY. CurrentSharpeRatio * (current open positions / number of possible open positions) ^ (1 / UTILITY) |
See also:
MINPOSITIONS, NOWEIGHT, TOTALRISKTARGET, Markowitz style portfolio optimization
..\Sample Rules\Position Sizing Rules\ReAllocate.siz