Portfolio Group Constraints

11 Pages Posted: 9 Mar 2022

Date Written: February 12, 2022


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

Suggested Citation

Pedersen, Magnus, Portfolio Group Constraints (February 12, 2022). Available at SSRN: https://ssrn.com/abstract=4033243 or http://dx.doi.org/10.2139/ssrn.4033243

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