Greedy Method for SMRPs (PART 2)
Implementing the greedy method for SMRPs with 2 new metrics
We recently explored the use of the Greedy algorithm for generating Sparse Mean Reverting Portfolios (SMRPs) using the Portmanteau criterion. In this article, we will expand a little on this method and look at 2 other metrics which take a slightly different perspective when optimizing. These two metrics are:
Predictability (Box-Tiao Canonical Decomposition)
Code will be included so that you can test this out for yourself. I’ll also add some commentary on how these metrics can be useful when used together.