Hi, I have experimented the scripts posted in the Financial Hacker blog, and I found unexpected behaviors.
The Markowitz script most of the time does not provide better results than 1/N allocation strategy. This is an example. The ETFs:
"XMUS.MI", // db x-trackers MSCI USA Index UCITS ETF 1C EUR LU0274210672 CAP "XEMB.MI", // db x-trackers II Emerging Markets Liquid Eurobond UCITS ETF 1C EUR LU0321462953 CAP "XGIN.MI", // db x-trackers II iBoxx Global Inflation-Linked UCITS ETF 1C EUR LU0290357929 CAP "EMG.MI", // Lyxor Ucits Etf Eumts Infl Linked Inv Gr FR0010174292 CAP "EMI.MI", // Lyxor UCITS ETF EuroMTS Inflation Linked Investment Grade (DR) (EUR) FR0010174292 CAP "XFFE.MI", // db x-trackers II Fed Funds Effective Rate UCITS EUR LU0321465469 CAP
(just copy and paste this set in the original scripts)
provide a good HeatMap, but not a good MVOtest. I can not say why. I have tried several set of ETFs and, most of the times, the MVO was not as good than 1/N allocation strategy.
I have seen that results vary a lot based on the data quality of the ETFs chosen and the mix of mean/Variance more than based on quality of the "heatmap".
The first point of attention was the quality of data. Be aware that Yahoo sometimes download less data than expected. Yahoo ETF graph goes back to 2008 while you download only 2 years for testing. (some sort of filter/check could help)
The second point of attention was ETF with profit periodic distribution. It seems that they works not as good than ETFs with capitalized profits, but I can not mathematically prove my impressions
Heatmap and MVOTest of previous ETF Sample attached.
I am very interested in improving ETFs allocation strategy, and I was very disappointed that MVO did not perform as expected. I am looking forward to someone else experience and feedback.
