demo/demo_weight_concentration.R

In R-Finance/PortfolioAnalytics: Portfolio Analysis, including Numerical Methods for Optimization of Portfolios

library(PortfolioAnalytics)
library(ROI)
library(ROI.plugin.quadprog)

data(edhec)
R <- edhec[, 1:8]
colnames(R) <- c("CA", "CTAG", "DS", "EM", "EMN", "ED", "FIA", "GM")
funds <- colnames(R)

cap_labels <- c(rep("Group1", 2), rep("Group2", 2), 
                rep("Group3", 2), rep("Group4", 2))


# Create initial portfolio object with category_labels
init.portf <- portfolio.spec(assets=funds, category_labels=cap_labels)
# Add some weight constraints
init.portf <- add.constraint(portfolio=init.portf, type="full_investment")
init.portf <- add.constraint(portfolio=init.portf, type="long_only")
# Add objective to minimize variance
init.portf <- add.objective(portfolio=init.portf, type="risk", name="var")

# Run the optimization with var as the only objective
opt1 <- optimize.portfolio(R=R, portfolio=init.portf, optimize_method="ROI", trace=TRUE)
opt1

# Add the weight_concentration objective
# Set the conc_aversion values to 0 so that we should get the same value as min var
conc.portf <- add.objective(portfolio=init.portf, type="weight_concentration", name="HHI", 
                            conc_aversion=0, conc_groups=init.portf$category_labels)

opt2 <- optimize.portfolio(R=R, portfolio=conc.portf, optimize_method="ROI", trace=TRUE)
opt2
all.equal(opt1$weights, opt2$weights)
chart.Weights(opt2)

# Now change the conc_aversion values
conc.portf$objectives[[2]]$conc_aversion <- c(0.03, 0.03, 0.06, 0.02)
opt3 <- optimize.portfolio(R=R, portfolio=conc.portf, optimize_method="ROI", trace=TRUE)
opt3

chart.Weights(opt3)

# We do not have a group constraint, but we can plot the groups based on
# category labels in the portfolio object
chart.GroupWeights(opt3, grouping="category", plot.type="barplot", col=bluemono)

# If all the conc_aversion values are very high, this should result in an equal weight portfolio
conc.portf$objectives[[2]]$conc_aversion <- rep(1e6, 4)
opt4 <- optimize.portfolio(R=R, portfolio=conc.portf, optimize_method="ROI", trace=TRUE)
opt4
chart.Weights(opt4)