So I've read up on portfolio optimization with modern portfolio theory, metrics like the Sharpe ratio, some of the different methods used to do, etc. The only question I have, that might not even be a question since I'm an amateur, is how is portfolio optimization typically used as a trading strategy?
From what little I have gathered, portfolio optimization is often used for with some rebalancing strategy or simply buy-and-hold? However If my understanding is correct, most techniques only use data from the past to find the "best portfolio" – making this a backwards looking strategy. This doesn't seem super useful unless you're alright with your entire strategy relying being lagging and stilly relying on the faulty assumption that past performance is indicative of future performance.
Thoughts? Just feel like I'm missing something here or overthinking it.
Submitted October 21, 2020 at 08:22PM by Farconion