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US-20260127673-A1 - METHODS AND SYSTEMS FOR OPTIMIZED AND DIVERSIFIED PORTFOLIOS

US20260127673A1US 20260127673 A1US20260127673 A1US 20260127673A1US-20260127673-A1

Abstract

A computer-implemented method for optimizing a composition of an investment portfolio, comprising: receiving a risk tolerance level for the investment portfolio; receiving an investment objective; determining constraints for the investment portfolio based on the risk tolerance level; receiving a selection of a previously curated core portfolio; receiving a selection of one or more assets to add to the core portfolio, to generate the investment portfolio; determining if the investment portfolio satisfies the constraints, and if so: receiving a selection of a benchmark portfolio comprising the core portfolio or another selected portfolio; obtaining market data for (i) the core portfolio, and (ii) the investment portfolio; performing Principal Component Analysis (PCA) on the core portfolio market data to determine a first number of independent factors contributing to returns thereof; and performing said PCA on the investment portfolio market data to determine a second number of independent factors contributing to returns thereof.

Inventors

  • Aditya Chityala

Assignees

  • Aditya Chityala

Dates

Publication Date
20260507
Application Date
20241213

Claims (20)

  1. 1 . A computer-implemented method comprising a processor and a non-transitory computer-readable medium, the method for optimizing a composition of an investment portfolio, the method comprising: receiving a risk tolerance level for the investment portfolio; receiving an investment objective; determining constraints for the investment portfolio based on the risk tolerance level; receiving a selection of a previously curated core portfolio; receiving a selection of one or more assets to add to the core portfolio, to generate the investment portfolio; determining if the investment portfolio satisfies the constraints; if the investment portfolio satisfies the constraints: receiving a selection of a benchmark portfolio comprising the core portfolio or another selected portfolio; obtaining market data for (i) the core portfolio and the benchmark portfolio, and (ii) the investment portfolio; performing Principal Component Analysis (PCA) on the core portfolio market data to determine a first number of independent factors contributing to returns of the core portfolio; and performing said PCA on the investment portfolio market data to determine a second number of independent factors contributing to returns of the investment portfolio.
  2. 2 . The computer-implemented method of claim 1 further comprising: determining if the second number of independent factors is greater than the first number of independent factors; if the second number of independent factors is greater than the first number of independent factors: receiving input of an optimization type for asset allocation of the investment portfolio; receiving input of minimum and maximum allocation of each asset in the investment portfolio; analyzing performance of the investment portfolio; if the performance of the investment portfolio is below a threshold performance, recommending a new minimum and/or maximum allocation of said each asset in the investment portfolio and/or a new said optimization type for the investment portfolio, based on the analyzing of the performance of the investment portfolio; and receiving an acceptance of the recommendation of the new minimum and/or maximum allocation of said each asset in the investment portfolio and/or the new optimization type, to generate an optimized investment portfolio.
  3. 3 . The computer-implemented method of claim 1 wherein the investment objective comprises: (i) reinvest income earned at a rebalancing time; or (ii) withdraw the income earned at the rebalancing time.
  4. 4 . The computer-implemented method of claim 2 wherein the risk tolerance level for the investment portfolio comprises a low risk tolerance, a medium risk tolerance or a high risk tolerance.
  5. 5 . The computer-implemented method of claim 4 wherein the constraints determined for the investment portfolio based on the risk tolerance level comprise, for the low risk tolerance: available asset classes comprise equities, preferred shares, fixed income, and/or Real Estate Investment Trust (REIT), maximum asset class exposure for any one asset class comprises 35%, and for the recommending the new minimum and/or maximum allocation of said each asset in the investment portfolio and/or the new said optimization type for the investment portfolio, volatility of the investment portfolio is not higher than a benchmark volatility of the benchmark portfolio by a factor of 10%.
  6. 6 . The computer-implemented method of claim 4 wherein the constraints determined for the investment portfolio based on the risk tolerance level comprise, for the medium risk tolerance: available asset classes comprise equities, preferred shares, fixed income, and/or Real Estate Investment Trust (REIT), maximum asset class exposure for any one asset class comprises 40%, and for the recommending the new minimum and/or maximum allocation of said each asset in the investment portfolio and/or the new said optimization type for the investment portfolio, volatility of the investment portfolio is not higher than a benchmark volatility of the benchmark portfolio by a factor of 20%.
  7. 7 . The computer-implemented method of claim 4 wherein the constraints determined for the investment portfolio based on the risk tolerance level comprise, for the high risk tolerance: available asset classes comprise equities, preferred shares, fixed income, Real Estate Investment Trust (REIT), hybrid, energy, precious metals, and/or other metals, maximum asset class exposure for any one asset class comprises 40%, and for the recommending the new minimum and/or maximum allocation of said each asset in the investment portfolio and/or the new said optimization type for the investment portfolio, volatility of the investment portfolio is not higher than a benchmark volatility of the benchmark portfolio by a factor of 20%.
  8. 8 . The computer-implemented method of claim 1 wherein the previously curated core portfolio comprises a defensive portfolio with a minimum number of independent factors contributing to returns of the core portfolio based on the greatest Eigen Values for at least a threshold percentage of the core portfolio's variance.
  9. 9 . The computer-implemented method of claim 1 wherein the market data comprises m+n years of end-of-day asset price and distribution data, wherein the m years of the market data are used for the performing the PCA on the core portfolio and the investment portfolio and the n years of the market data are used for the analyzing the performance of the investment portfolio, wherein the n years are subsequent to the m years.
  10. 10 . The computer-implemented method of claim 2 further comprising, if the second number of independent factors is not greater than the first number of independent factors: providing a recommendation for the selection of the one or more assets to add to the core portfolio; wherein the recommendation (i) includes no more than one asset that is of a similar asset type; (ii) limits asset class exposure according to the optimization type for the asset allocation of the investment portfolio; and (iii) does not exceed a configurable maximum number of assets for the investment portfolio.
  11. 11 . The computer-implemented method of claim 2 wherein the optimization type for the asset allocation of the investment portfolio comprises: (i) equal weights by individual assets; (ii) equal weights by asset class; (iii) maximize returns based on CAGR (Compound Annual Growth Rate); (iv) maximize returns based on income; (v) minimize portfolio variance; and/or (vi) minimize taxes on income from a non-registered income portfolio.
  12. 12 . The computer-implemented method of claim 2 wherein the input of the minimum and maximum allocation of said each asset in the investment portfolio comprises a value that simultaneously sets a range for the allocation of said each asset.
  13. 13 . The computer-implemented method of claim 12 wherein the value that simultaneously sets the range for the allocation of said each asset sets the range for the allocation of said each asset while satisfying the constraints.
  14. 14 . The computer-implemented method of claim 12 wherein the value that simultaneously sets the range for the allocation of said each asset comprises a value from a minimum value to a maximum value, wherein the minimum value represents equal weights of assets in the investment portfolio, and the maximum value represents a maximum range between the minimum and maximum allocation for each said asset in the investment portfolio.
  15. 15 . The computer-implemented method of claim 2 wherein the analyzing the performance of the investment portfolio comprises the analyzing the performance of the investment portfolio (i) in isolation and/or (ii) in relation to the benchmark portfolio.
  16. 16 . The computer-implemented method of claim 2 wherein the recommended new minimum and/or maximum allocation of said each asset in the investment portfolio and/or the new said optimization type for the investment portfolio comprises the new minimum and/or maximum allocation and/or the new said optimization type that yields a Sharpe Ratio for the investment portfolio that is both (i) better than the Sharpe Ratio of the benchmark portfolio and (ii) maximized while satisfying the constraints.
  17. 17 . The computer-implemented method of claim 2 further comprising: tracking performance of the optimized investment portfolio and the benchmark portfolio; and communicating the optimized investment portfolio performance and the benchmark portfolio performance.
  18. 18 . A system for optimizing a composition of an investment portfolio, the system comprising: at least one optimization computing device comprising one or more processors, a non-transitory computer readable medium and a communication interface device, the one or more processors communicatively coupled to the non-transitory computer readable medium and the communication interface device; the non-transitory computer-readable medium comprising computer-executable instructions stored thereon that when executed by the one or more processors cause the one or more processors to: receive, via the communication interface device, a risk tolerance level for the investment portfolio; receive, via the communication interface device, an investment objective; determine constraints for the investment portfolio based on the risk tolerance level; receive, via the communication interface device, a selection of a previously curated core portfolio; receive, via the communication interface device, a selection of one or more assets to add to the core portfolio, to generate the investment portfolio; determine if the investment portfolio satisfies the constraints; if the investment portfolio satisfies the constraints: receive, via the communication interface device, a selection of a benchmark portfolio comprising the core portfolio or another selected portfolio; obtain, via the communication interface device, market data for (i) the core portfolio and the benchmark portfolio, and (ii) the investment portfolio; perform Principal Component Analysis (PCA) on the core portfolio market data to determine a first number of independent factors contributing to returns of the core portfolio; and perform said PCA on the investment portfolio market data to determine a second number of independent factors contributing to returns of the investment portfolio.
  19. 19 . The system of claim 18 wherein computer-executable instructions when executed by the one or more processors further cause the one or more processors to: determine if the second number of independent factors is greater than the first number of independent factors; if the second number of independent factors is greater than the first number of independent factors: receive, via the communication interface device, input of an optimization type for asset allocation of the investment portfolio; receive, via the communication interface device, input of minimum and maximum allocation of each asset in the investment portfolio; analyze performance of the investment portfolio; if the performance of the investment portfolio is below a threshold performance, recommend a new minimum and/or maximum allocation of said each asset in the investment portfolio and/or a new said optimization type for the investment portfolio, based on the analysis of the performance of the investment portfolio; and receive, via the communication interface device, an acceptance of the recommendation of the new minimum and/or maximum allocation of said each asset in the investment portfolio and/or the new optimization type, to generate an optimized investment portfolio.
  20. 20 . The system of claim 19 wherein the input of the minimum and maximum allocation of said each asset in the investment portfolio comprises a value that simultaneously sets a range for the allocation of said each asset, the value comprising a value from a minimum value to a maximum value, wherein the minimum value represents equal weights of assets in the investment portfolio, and the maximum value represents a maximum range between the minimum and maximum allocation for each said asset in the investment portfolio.

Description

FIELD The following relates generally to methods and systems for optimizing the composition of financial investment portfolios. BACKGROUND Current methods for optimizing the makeup or composition of investment portfolios require the development of a portfolio from scratch, or limit the performance analysis of a portfolio in a manner that may unduly constrain the number of independent factors that could drive returns for the portfolio. Further, many such known methods do not account for an investor's risk appetite, nor utilize Principal Component Analysis (PCA) to both determine a minimum set of independent factors in a pre-established core or benchmark portfolio and to further analyze an investment portfolio derived in part therefrom (for tracking by an investor) to determine if there is an increase in the number of independent factors driving returns, while also tracking the performance of the investment portfolio. Further, such known methods tend not to provide recommendations and/or flexibility to further refine the investment portfolio based on the two-step PCA analysis and/or market performance analysis. Further still, such known methods do not generally allow for a simplified process (such as a digital value selector) allowing investors to quickly reallocate the assets within the investment portfolio while remaining within constraints that conform to the investor's risk appetite. SUMMARY In an aspect there is provided a computer-implemented method comprising a processor and a non-transitory computer-readable medium, the method for optimizing a composition of an investment portfolio, the method comprising: receiving a risk tolerance level for the investment portfolio; receiving an investment objective; determining constraints for the investment portfolio based on the risk tolerance level; receiving a selection of a previously curated core portfolio; receiving a selection of one or more assets to add to the core portfolio, to generate the investment portfolio; determining if the investment portfolio satisfies the constraints; if the investment portfolio satisfies the constraints: receiving a selection of a benchmark portfolio comprising the core portfolio or another selected portfolio; obtaining market data for (i) the core portfolio and benchmark portfolio, and (ii) the investment portfolio; performing Principal Component Analysis (PCA) on the core portfolio market data to determine a first number of independent factors contributing to returns of the core portfolio; and performing said PCA on the investment portfolio market data to determine a second number of independent factors contributing to returns of the investment portfolio. In another aspect there is provided a system for optimizing a composition of an investment portfolio, the system comprising: at least one optimization computing device comprising one or more processors, a non-transitory computer readable medium and a communication interface device, the one or more processors communicatively coupled to the non-transitory computer readable medium and the communication interface device; the non-transitory computer-readable medium comprising computer-executable instructions stored thereon that when executed by the one or more processors cause the one or more processors to: receive, via the communication interface device, a risk tolerance level for the investment portfolio; receive, via the communication interface device, an investment objective; determine constraints for the investment portfolio based on the risk tolerance level; receive, via the communication interface device, a selection of a previously curated core portfolio; receive, via the communication interface device, a selection of one or more assets to add to the core portfolio, to generate the investment portfolio; determine if the investment portfolio satisfies the constraints; if the investment portfolio satisfies the constraints: receive, via the communication interface device, a selection of a benchmark portfolio comprising the core portfolio or another selected portfolio; obtain, via the communication interface device, market data for (i) the core portfolio and the benchmark portfolio, and (ii) the investment portfolio; perform Principal Component Analysis (PCA) on the core portfolio market data to determine a first number of independent factors contributing to returns of the core portfolio; and perform said PCA on the investment portfolio market data to determine a second number of independent factors contributing to returns of the investment portfolio. In a further aspect there is provided a computer-implemented method for optimizing an investment portfolio composition, the method comprising: receiving, from a user, a risk tolerance level for the investment portfolio; receiving, from the user, an investment objective; determining constraints for the investment portfolio based on the risk tolerance level; receiving, from the user, a selection of a previously curated core portfo