Here is an article on ranking dividend aristocrats.
Here is an article on ranking dividend aristocrats.
Mosaic investors are those individuals who build their portfolios around a core of index ETFs, but choose to “spike” their portfolio with a few individual stocks.
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Selecting the recommended stocks from the 40 securities listed in a prior blog, here is the Quantext Portfolio Planner (QPP) analysis of those 17 stocks. Included is the Correlation Matrix graph and for good measure, I threw in the “Delta Factor” projections. Since there were fewer stocks than in the original analysis I was able to show all the correlations.
QPP Analysis: As in the prior QPP analysis the S&P 500 is projected to grow at 7.0% annually over the next several months. This arrangement of 17 stocks has a projected return of 8.2% and a projected standard deviation of 14.4%. The percentage allocated to each stocks comes out of the recommendations when I ran an optimizer-momentum analysis of 40 stocks. One could leave PG off the list as only 0.03% is recommended for this stock. PG shows up as 0.0% in this screenshot due to rounding.
As in the analysis of 40 stocks, this group of 17 outperforms the S&P 500 by a significant amount over the last five years and does it with less volatility. Even with the reduced number of holdings, the Diversification Metric still comes in at 43% or above our goal of 40%. The yield remains over 3.0%, another plus for this portfolio.
Is the forty (40) stock portfolio optimized if one assigns 2.5% to each stocks? Follow the optimized-momentum analysis to answer this question.
Efficient Frontier: A quick glance at the Efficient Frontier graph shows us that equal allocation to each stock does not provide the most optimized portfolio. This does not come as a surprise. The equal allocation was done for simplicity just to see how the QPP analysis looking in a prior blog post. The optimizer-momentum software tool provides us with more information as to how we might improve the Return/Risk ratio for a 40-stock portfolio.
Keep in mind that I placed a few constraints on the optimizer. For example, in this run I limited the percentage to be held in any one stock to be 10%.
The following list of forty (40) stocks was suggested by a reader for Quantext Portfolio Planner (QPP) analysis. Long time readers of ITA know that QPP is a software program developed by Geoff Considine, author of a blog, The Portfolioist.
QPP Analysis: The following list of 40 stocks results in a well-diversified portfolio as indicated by the Diversification Metric. Anything over 40% is considered excellent and this portfolio generates a 42% value. The S&P 500 is assumed a growth rate of 7.0% over the next six to twelve months and this portfolio is projected to generate a 7.5% return with only a 12% standard deviation. This gives rise to a projected Return/Risk ratio of 0.63. Anything over 0.6 is highly valued.
Check the Historical Data below and see how this group of stocks performed compared to the S&P 500. What is particularly impressive is the difference in portfolio volatility. This portfolio was 6.6% points lower than the S&P 500, a huge difference.
Correlation Matrix: The QPP software considers 80% or higher to be highly correlated and anything below 50% to be low. Most of the stocks in this combination are either moderately correlated or fall into the low correlated bracket.
At a later date I will run an optimization-momentum analysis of this portfolio. Keep checking in for that analysis.
ITA Platinum members looking for dividend growth stocks will find this list of interest. I am not recommending any companies for purchase, but rather throwing out a list of companies that passed stringent screens. Do your own research before making any investment decisions.
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Here is my optimization analysis on a 12-Dividend portfolio made up of individual stocks. It might be interesting to look at a portfolio made up of 20 to 30 individual stocks.
I like the 9.0 projected return and the high Return/Risk ratio. A yield of 2.7% is also quite respectable.
Do these results match others who are using this optimizer in conjunction with the QPP software?
Now we take the same list of stocks as used in the prior blog post, only this time I optimized the portfolio by requesting for a maximum Return/Risk ratio. In the first screenshot readers will see the QPP analysis. In the second slide, note the correlation matrix and in the third I show the constraints placed on the portfolio of stocks.
QPP Analysis: The following asset allocation gives up return, but significantly reduces risk. Reduction in the standard deviation (10.7%) is related to the constraint of requesting a maximum Return/Risk ratio. Note the increase in Diversification Matrix and the reduction in the Portfolio Autocorrelation. This portfolio has a respectable yield of 3.8%.
Correlation Matrix: Pay attention to those stocks that have a weight greater than zero. For example, omit VTI, COP, etc. in your thinking. They do not enter into the calculations even though there is a percentage present. This portfolio ends up with no highly correlated holdings. It is also important to note that the correlations change when the weight or percent allocated to a specific stock varies.
Portfolio Constraints: The following screen shot shows the constraints placed on the portfolio when the Set Objective is to maximize the Return/Risk ratio. Had I requested a maximum Return, Risk would have increased significantly.
Please post comments and questions in the space provided below.
This past weekend I was running my dividend stock screening program to see which companies passed the screen. Then I recalled that I once had a “valuation” screen that looked for companies that were priced under numerous valuation parameters as laid out in the Stock Investor Professional, AAII’s stock screening program. Here are the valuation parameters I used for my screen, in addition to the dividend or yield screens.
This material is not available for publication elsewhere on the Internet. It is reserved for Platinum members.
In the following screenshot Platinum members will find the latest list Piotroski Stocks. These stocks have a High F-Score of eight (8) or higher.
The following information is not available for publication elsewhere on the internet without my permission. LGH
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