I have a trading system that chooses top 10 stocks in Nasdaq 100 ranked on relative strength and some other factors. However, I'd like to take positions in only 5 of these 10 stocks based on how minimally correlated these are to others for diversification effect. How do I resolve this? I do have the correlation/covariance matrices computed. Literature seems to indicate applying weights to reduce correlations but I felt there should be a simpler solution. That said, the stocks doesn't need to be equally weighted if it is easier to compute these weights.
A computationally easier solution is preferred even if it is not completely accurate since I need to implement this in Amibroker trading software.
No comments:
Post a Comment