http://allaboutalpha.com/blog/2008/06/05/is-an-integrated-13030-portfolio-always-better-than-a-combined-one/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Fri, 19 Mar 2010 07:52:26 +0000 http://wordpress.org/?v=abc hourly 1 http://allaboutalpha.com/blog/2008/06/05/is-an-integrated-13030-portfolio-always-better-than-a-combined-one/comment-page-1/#comment-117291 Sri Iyer Wed, 18 Jun 2008 11:35:40 +0000 http://allaboutalpha.com/blog/2008/06/05/is-an-integrated-13030-portfolio-always-better-than-a-combined-one/#comment-117291 The act of cash in a portfolio is on our end seen as a substitute for a larger error term than normally exhibited by our models. Cash is useflu only under circumstances when the model is not able to expalin a significant component of stochastic behaviour. By defenition a spike in the error term menas we are not seeing any ideas. Purely on a defensive basis cash inclusion is a value added component used as a substitute for the error term. One can minimize cash from the equation if the "n" or number of stocks in a portfolio can be increased as a result of a spike inthe error term. This is counter intuitve to the extent that it increses the systemic risk inthe portfolio and hence offers no tangible alpha, however the goal in this case is to reduce the tranfer coeffecient during times of IC volatility. We use cash if we do see these conditions emerge as in January 2008 or May 2006. The act of cash in a portfolio is on our end seen as a substitute for a larger error term than normally exhibited by our models. Cash is useflu only under circumstances when the model is not able to expalin a significant component of stochastic behaviour. By defenition a spike in the error term menas we are not seeing any ideas. Purely on a defensive basis cash inclusion is a value added component used as a substitute for the error term. One can minimize cash from the equation if the “n” or number of stocks in a portfolio can be increased as a result of a spike inthe error term. This is counter intuitve to the extent that it increses the systemic risk inthe portfolio and hence offers no tangible alpha, however the goal in this case is to reduce the tranfer coeffecient during times of IC volatility. We use cash if we do see these conditions emerge as in January 2008 or May 2006.

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