Portfolio Group Constraints

Abstract

This paper presents a stand-alone algorithm for adjusting the weights of an investment portfolio, so they satisfy multiple overlapping group-constraints. This is useful for ensuring greater diversity of an investment portfolio. The algorithm is fairly simple and converges to a near-optimal solution in a small number of iterations, which in practice only takes a few milli-seconds to compute for a portfolio of 1000 assets. The algorithm also retains as much as possible of the diversity and relative magnitudes of the original portfolio weights.

Keywords: investing, portfolio, diversification, constraints

JEL Classification: G11