Methods and systems for building and managing portfolios based on ordinal ranks of securities

• US 8,473,398 B1
• Filed: 10/05/2012
• Issued: 06/25/2013
• Est. Priority Date: 09/10/2008
• Status: Active Grant

• Current Assignee: Goldman Sachs Asset Management LP (Private Equity) (Goldman Sachs Group Incorporated)
• Original Assignee: Westpeak Global Advisors, LLC
• Inventors: Heaney, Ronan G.
• Primary Examiner(s): Monfeldt, Sarah
• Assistant Examiner(s): AMELUNXEN, BARBARA J
• Application Number:
  US13/645,697
• Time in Patent Office: 263 Days
• Field of Search: 705/36.R, 705/35, 705/37, 705/36.T, 1/1
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A system, method, and computer-readable medium are provided for managing a portfolio using financial instrument rankings. A processor determines portfolio weights for financial instruments based on a ranking associated with each instrument, a cutoff rank, and a risk multiplier.

Claims

1. A method of assigning portfolio weights to each financial instrument in a portfolio of financial instruments, the method comprising:

obtaining, with a processor, a ranking of each financial instrument in the portfolio and a portfolio-wide cutoff rank;

assigning, with the processor, a long-short portfolio weight to each financial instrument in the portfolio, wherein the long-short portfolio weight assigned to the i^th financial instrument is determined according to the relationship

PorWgt_i=BmkWgt_i+(LSRM*RelWgt_i),

and wherein;

BmkWgt_i denotes a benchmark weight for the i^th financial instrument,

LSRM denotes a long-short risk multiplier parameter for the portfolio indicative of a magnitude of active positions in the long-short portfolio, and

RelWgt_i denotes a relative weight of the i^th financial instrument proportional to a difference between the ranking of the i^th financial instrument and the cutoff rank; and

assigning, with the processor, a long-only portfolio weight to each financial instrument in the portfolio having a ranking larger than the cutoff rank, wherein the long-only portfolio weight assigned to the i^th financial instrument is based on a difference between the ranking of the i^th financial instrument and the cutoff rank, the benchmark weight of the i^th financial instrument, and a sum of long-short portfolio weights corresponding to short-held financial instruments in the long-short portfolio.

2. The method of claim 1, wherein the relative weight for the i^th financial instrument is determined according to the relationship

RelWgt_i=(Rank_i−

Rank_c)/Σ

<sub>Ranki>

=Rankc</sub>(Rank_i−

Rank_c), for all i with Rank_i>

=Rank_c, and

RelWgt_i=(Rank_i−

Rank_c)/Σ

<sub>Ranki<

Rankc</sub>|(Rank_i−

Rank_c)|, for all i with Rank_i<

Rank_c, wherein Rank_i denotes the ranking for the i^th financial instrument and Rank_c denotes the cutoff rank.

3. The method of claim 1, further comprising determining, with the processor, a long-only adjustment multiplier (LOAM) parameter based on the LSRM parameter and a sum of long-short portfolio weights corresponding to short-held financial instruments in the long-short portfolio.

4. The method of claim 3, wherein the LOAM is determined according to the relationship

LOAM=(−

Σ

PorWgt_i)/LSRM, for all PorWgt_i<

0.

5. The method of claim 1, wherein the benchmark weight for a respective financial instrument in the portfolio is determined to correspond to a weight of the respective financial instrument in a financial index selected from the S&

P 500, Russell 1000, Russell 2000, MSCI Europe, and MSCI Japan indices.

6. The method of claim 1, wherein the cutoff rank is generated from historical financial data.

7. The method of claim 1, wherein the rank for each financial instrument in the portfolio is determined according to a grouped ranking scheme in which at least two financial instruments in the portfolio are assigned a shared ranking.

8. The method of claim 1, wherein a first financial instrument in the portfolio has a closest ranking to a second financial instrument in the portfolio and the first financial instrument and the second financial instrument have rankings that are non-consecutive values.

9. The method of claim 1, wherein the financial portfolio comprises a first financial instrument, a second financial instrument, and a third financial instrument that are consecutively sequenced by their respective rankings, and wherein a difference between the ranking of the first financial instrument and the second financial instrument is greater than a difference between the ranking of the second financial instrument and the third financial instrument.

10. The method of claim 1, wherein the ranking of at least one financial instrument in the portfolio is a non-integer value.

11. A system for assigning portfolio weights to each financial instrument in a portfolio of financial instruments, the system comprising:

a database; and

a processor configured to;

obtain a ranking of each financial instrument in the portfolio and a portfolio-wide cutoff rank;

assign a long-short portfolio weight to each financial instrument in the portfolio, wherein the long-short portfolio weight assigned to the i^th financial instrument is determined according to the relationship

PorWgt_i=BmkWgt_i+(LSRM*RelWgt_i),

and wherein;

BmkWgt_i denotes a benchmark weight for the i^th financial instrument,

LSRM denotes a long-short risk multiplier parameter for the portfolio indicative of a magnitude of active positions in the long-short portfolio, and

RelWgt_i denotes a relative weight of the i^th financial instrument proportional to a difference between the ranking of the i^th financial instrument and the cutoff rank; and

assign a long-only portfolio weight to each financial instrument in the portfolio having a ranking larger than the cutoff rank, wherein the long-only portfolio weight assigned to the i^th financial instrument is based on a difference between the ranking of the i^th financial instrument and the cutoff rank, the benchmark weight of the i^th financial instrument, and a sum of long-short portfolio weights corresponding to short-held financial instruments in the long-short portfolio.

12. The system of claim 11, wherein the processor is further configured to determine the relative weight of the i^th financial instrument according to the relationship

RelWgt_i=(Rank_i−

Rank_c)/Σ

<sub>Ranki>

=Rankc</sub>(Rank_i−

Rank_c), for all i with Rank_i>

=Rank_c, and

RelWgt_i=(Rank_i−

Rank_c)/Σ

<sub>Ranki<

Rankc</sub>|(Rank_i−

Rank_c)|, for all i with Rank_i<

Rank_c, wherein Rank_i denotes the ranking for the i^th financial instrument and Rank_c denotes the cutoff rank.

13. The system of claim 11, wherein the processor is further configured to determine a long-only adjustment multiplier (LOAM) parameter based on the LSRM parameter and a sum of long-short portfolio weights corresponding to short-held financial instruments in the long-short portfolio.

14. The system of claim 13, wherein the processor is further configured to determine the LOAM according to the relationship

LOAM=(−

Σ

PorWgt_i)/LSRM, for all PorWgt_i<

0.

15. The system of claim 11, wherein the processor is further configured to determine the benchmark weight for a respective financial instrument in the portfolio to correspond to a weight of the respective financial instrument in a financial index selected from the S&

P 500, Russell 1000, Russell 2000, MSCI Europe, and MSCI Japan indices.

16. The system of claim 11, wherein the processor is further configured to generate the cutoff rank from historical financial data.

17. The system of claim 11, wherein the processor is further configured to determine the rank for each financial instrument in the portfolio according to a grouped ranking scheme in which at least two financial instruments in the portfolio are assigned a shared ranking.

18. The system of claim 11, wherein a first financial instrument in the portfolio has a closest ranking to a second financial instrument in the portfolio and the first financial instrument and the second financial instrument have rankings that are non-consecutive values.

19. The system of claim 11, wherein the financial portfolio comprises a first financial instrument, a second financial instrument, and a third financial instrument that are consecutively sequenced by their respective rankings, and wherein a difference between the ranking of the first financial instrument and the second financial instrument is greater than a difference between the ranking of the second financial instrument and the third financial instrument.

20. The system of claim 11, wherein the ranking of at least one financial instrument in the portfolio is a non-integer value.