Is there a scientific, mathematical way to create a strong, solid stock portfolio? This is the question asked by anyone involved in the stock market, from huge investment firms dealing in billions to individuals managing their personal savings.
It was also the question that occupied American economist Harry Markowitz and led to the development of his Modern Portfolio Theory (MPT) and his winning of the Nobel Memorial Prize in Economic Sciences (more commonly known as the Nobel Prize) in 1990.
MPT is a theory of financial economics that suggests a way to maximize returns while minimizing risk through careful selection of the assets within a portfolio.
MPT states that, up to a certain point, investors can raise the yields of existing portfolios without raising the risk levels or they can lower the risk level without decreasing yields. Cherries does this by calculating the yield of the optimal combination of assets for every possible risk level.
There are a few things you need in order to create this kind of improvement in a portfolio: high levels of mathematical expertise, a powerful processing engine, and sophisticated algorithms for the large, complex calculations required. These are exactly the tools that Cherries offers on its fast, accessible website.
So How Do You Build a Portfolio with MPT?
According to MPT, there are a few steps to building the optimal portfolio:
Reduce risk by diversifying investments
Build a series of optimized portfolios with a given yield and minimal risk
Use statistical modeling to select the assets that are required create each portfolio
Cherries – Optimal Portfolios in Just Four Clicks
The Cherries platform implements the principles of MPT in its optimization process, and allows users (whether or not they’re ready to invest money for real) to take advantage of comprehensive real-time data to create optimized stock portfolios. The Cherries platform includes date trading data from every stock traded on all three major US stock exchanges.
Users can create unlimited portfolios and define their own terms for each portfolio they build, including risk level and investment volume. They can even test the Cherries portfolio using backtesting, Cherries’ retroactive simulation tool, to help see “what might have been.”