Understanding How This Optimizer Works

Emotomy's Portfolio Optimizer helps you improve the expected risk-adjusted returns of your investment strategy. The Optimizer analyzes your portfolio and suggests other portfolios with a modified allocation that have generated better historical performance with closely equal or better risk characteristics.

Portfolio Optimizer uses your portfolio allocation to design trial portfolios that are compared to your original. Each trial portfolio uses the same risk management approach as your portfolio. This means that the portfolio securities, rebalancing method, rebalancing frequency, advisory fees and the logic around any stop-losses remain unchanged.

Using your prescribed risk management approach, Portfolio Optimizer finds and analyzes trial portfolios in the 'neighbourhood' of your own by varying the weights initially allocated to each component security. The search radius in each neighbourhood is set to a maximum of 5 percentage points. For instance if a security weighed 20 percent in your portfolio, Portfolio Optimizer will create trial portfolios by initially allocating between 15 and 25 percent to that security. Neighbourhoods are searched using weight increments of about 3 percentage points.

To increase its effectiveness, Portfolio Optimizer first finds the universe of all available trial portfolios in the neighbourhood of yours. A simple portfolio with three component securities can result in a universe containing hundreds of trial portfolios. The universe will contain thousands of trial portfolios as the number of securities increases.

To ensure that Portfolio Optimizer completes its computations within a few minutes at most, it is designed to stop after it has evaluated 25 trial portfolios selected at random in the available universe, or after it finds 2 portfolios better than the original. It is also required to evaluate a minimum of 5 portfolios, and restricted to spend at most 2 minutes testing portfolios each time it starts.

As a result Portfolio Optimizer may need to be run multiple times consecutively to work through all the available trial portfolios.

Portfolio Optimizer will automatically give you a choice to either stop or keep running and look for additional optimized portfolios. You may want to allow it to run several times to examine different improved portfolios. Since Portfolio Optimizer works through all trial portfolios methodically, it may find improved portfolios in one run but not in another, or may suggest different sets of improved portfolios every time it runs.