demo/demo_opt_combine.R

In PortfolioAnalytics: Portfolio Analysis, Including Numerical Methods for Optimization of Portfolios

#' ---
#' title: "Combine Optimizations Demo"
#' author: Ross Bennett
#' date: "7/17/2014"
#' ---

#' This script demonstrates how to combine optimizations for analysis.

#' Load the package and data
library(PortfolioAnalytics)
library(DEoptim)
data(edhec)
R <- edhec[, 1:5]
funds <- colnames(R)

#' Construct initial portfolio with basic constraints.
init.portf <- portfolio.spec(assets=funds)
init.portf <- add.constraint(portfolio=init.portf, type="leverage", 
                             min_sum=0.99, max_sum=1.01)
init.portf <- add.constraint(portfolio=init.portf, type="long_only")

#' Construct portfolio with objective to maximize portfolio mean return per unit ES.
MeanES.portf <- add.objective(portfolio=init.portf, type="return", name="mean")
MeanES.portf <- add.objective(portfolio=MeanES.portf, type="risk", name="ES")

#' Construct portfolio with objective to maximize mean with risk budget 
#' percent contribution limit.
MeanSD.portf <- add.objective(portfolio=init.portf, type="return", name="mean")
MeanSD.portf <- add.objective(portfolio=MeanSD.portf, type="risk_budget", 
                              name="StdDev", max_prisk=0.35)

#' Construct portfolio with objective to minimize portfolio expected shortfall 
#' with equal ES component contribution.
ESRB.portf <- add.objective(portfolio=init.portf, type="risk", name="ES")
ESRB.portf <- add.objective(portfolio=ESRB.portf, type="risk_budget", 
                            name="ES", min_concentration=TRUE)


#' Run MeanES optimization.
MeanES.opt <- optimize.portfolio(R=R, portfolio=MeanES.portf, 
                                 optimize_method="DEoptim", search_size=2000,
                                 trace=TRUE)

#' Run MeanSD optimization
MeanSD.opt <- optimize.portfolio(R=R, portfolio=MeanSD.portf, 
                                 optimize_method="DEoptim", search_size=2000, 
                                 trace=TRUE)

#' Run ES Risk Budget optimization
ESRB.opt <- optimize.portfolio(R=R, portfolio=ESRB.portf, 
                               optimize_method="DEoptim", search_size=2000, 
                               trace=TRUE)

#' Combine the optimizations.
opt <- combine.optimizations(list(MeanES=MeanES.opt, MeanSD=MeanSD.opt, ESRB=ESRB.opt))

#' Extract the objective measures from each optimize.portfolio object 
#' evaluated at all objectives.
obj <- extractObjectiveMeasures(opt)

#' Extract the optimal weights from each optimize.portfolio object.
weights <- extractWeights(opt)

#' Chart the risk contributions for StdDev and ES.
chart.RiskBudget(opt, match.col="StdDev", risk.type="percentage", ylim=c(0,1), legend.loc="topright")
chart.RiskBudget(opt, match.col="ES", risk.type="percentage", ylim=c(-0.2,1), legend.loc="topright")
chart.RiskBudget(opt, match.col="ES", risk.type="percentage", plot.type="bar", ylim=c(-0.2,1), legend.loc="topright")

#' Chart the optimal weights from each optimize.portfolio object.
chart.Weights(opt, ylim=c(0,1))
chart.Weights(opt, plot.type="bar", ylim=c(0,1))

#' Chart the optimal portfolios in risk-reward space
chart.RiskReward(opt, main="Optimal Portfolios")
chart.RiskReward(opt, risk.col="StdDev", main="Optimal Portfolios")