# Portfolio Optimization with Indexes



## Dan_the_Man (Apr 6, 2009)

Hi All. Has anyone found a website that will allow Canadians to optimize their portfolio of Canadian stocks? I have been playing with the Portfolio Monkey website a bit, but it doesn't appear to have data for TSX market companies.

To elaborate:

I want to understand whether I can ‘model’ my RRSP portfolio to optimize the weighting of different funds to produce the greatest expected return with lowest risk – make it “efficient” shall we say. The challenge I am having is as follows:

I plan to simply hold index funds (ETFs) that track the returns of their respective market indices.
I plan to hold the domestic market, US Market, World Market, Emerging Market (BRIC), domestic bond market and potentially a commodity index.
I want to understand how I relate the stocks and their reference markets to one another in one view of the portfolio.
I understand CAPM when it comes to individual stocks tied to ONE market return, but how do I think about a portfolio where each stock is measured against a different market return and likely has a covariance of 1 with its specific reference market? Do I have to calculate the covariance of the markets relative to one another? Do I need some sort of blended market reference? Once I figure that part out, if I choose a specific commodity type (say consumer staples) or a company stock (say GE), would I need to calculate its impact to the expected return of the portfolio and risk to a blended portfolio market return?


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## CanadianCapitalist (Mar 31, 2009)

Dan_the_Man said:


> Hi All. Has anyone found a website that will allow Canadians to optimize their portfolio of Canadian stocks?


I haven't seen a Canadian portfolio optimizer but I question the value of such back testing because the most efficient portfolio for the past 30 years wouldn't be the most efficient going forward. Instead, I would set a "reasonable" asset allocation and stick to it through highs and lows.


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## Sampson (Apr 3, 2009)

I absolutely agree with CC about question the value of such an analysis.

You'll essentially back testing the performance of different portfolios, but what exactly will that tell you going forward?


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