- new get_monte_carlo method in Efficient Frontier class

- CAGR is calculated in Efficient Frontier points instead of "CAGR by approximation"

Author: chilango74

README.md

@@ -4,7 +4,7 @@
         <img src="https://img.shields.io/badge/python-v3-brightgreen.svg"
             alt="python"></a> &nbsp;
     <a href="https://pypi.org/project/okama/">
-        <img src="https://img.shields.io/badge/pypi-v0.90-brightgreen.svg"
+        <img src="https://img.shields.io/badge/pypi-v0.91-brightgreen.svg"
             alt="pypi"></a> &nbsp;
     <a href="https://opensource.org/licenses/MIT">
         <img src="https://img.shields.io/badge/license-MIT-brightgreen.svg"
@@ -18,7 +18,9 @@
 _okama_ is a Python package developed for asset allocation and investment portfolio optimization tasks according to Modern Portfolio Theory (MPT).
 
 The package is supplied with **free** «end of day» historical stock markets data and macroeconomic indicators through API.
-
+>...entities should not be multiplied without necessity
+>
+> -- <cite>William of Ockham (c. 1287–1347)</cite>
 ## Okama main features
 
 - Investment portfolio constrained Markowitz Mean-Variance Analysis (MVA) and optimization
@@ -29,7 +31,7 @@ The package is supplied with **free** «end of day» historical stock markets da
 - Testing distribution on historical data
 - Dividend yield and other dividend indicators for stocks
 - Backtesting and comparing historical performance of broad range of assets and indexes in multiple currencies
-- Methods to track the perfomance of index funds (ETF) and compare them with benchmarks
+- Methods to track the performance of index funds (ETF) and compare them with benchmarks
 - Main macroeconomic indicators: inflation, central banks rates
 - Matplotlib visualization scripts for the Efficient Frontier, Transition map and assets risk / return performance
 

notebooks/03 efficient frontier.ipynb

@@ -29,3 +29,5 @@
 from okama.helpers import Float, Frame, Rebalance, Date
 from okama.settings import namespaces
 import okama.settings
+
+__version__ = '0.91'

okama/__init__.py

@@ -154,7 +154,7 @@ def minimize_risk(self,
         Returns a "point" with monthly values:
         - weights
         - mean return
-        - aproximate vaue for the CAGR
+        - CAGR
         - risk (std)
         Target return is a monthly or annual value:
         monthly_return = False / True
@@ -190,15 +190,19 @@ def objective_function(w):
             # Annualize risk and return
             a_r = Float.annualize_return(target_return)
             a_risk = Float.annualize_risk(risk=risk, mean_return=target_return)
-            # Risk adjusted return approximation
-            r_gmean = Float.approx_return_risk_adjusted(mean_return=a_r, std=a_risk)
+            # # Risk adjusted return approximation
+            # r_gmean = Float.approx_return_risk_adjusted(mean_return=a_r, std=a_risk)
+            # CAGR calculation
+            portfolio_return_ts = Frame.get_portfolio_return_ts(weights.x, ror)
+            cagr = Frame.get_cagr(portfolio_return_ts)
             if not self.labels_are_tickers:
                 asset_labels = list(self.names.values())
             else:
                 asset_labels = self.symbols
             point = {x: y for x, y in zip(asset_labels, weights.x)}
             point['Mean return'] = a_r
-            point['CAGR (approx)'] = r_gmean
+            point['CAGR'] = cagr
+            # point['CAGR (approx)'] = r_gmean
             point['Risk'] = a_risk
         else:
             raise Exception("No solutions were found")
@@ -234,7 +238,7 @@ def ef_points(self) -> pd.DataFrame:
         The columns of the DataFrame:
         - weights
         - mean return
-        - aproximate vaue for the CAGR
+        - CAGR
         - risk (std)
         All the values are annualized.
         """
@@ -243,5 +247,29 @@ def ef_points(self) -> pd.DataFrame:
         for x in target_rs:
             row = self.minimize_risk(x, monthly_return=True)
             df = df.append(row, ignore_index=True)
-        df = Frame.change_columns_order(df, ['Risk', 'Mean return', 'CAGR (approx)'])
+        df = Frame.change_columns_order(df, ['Risk', 'Mean return', 'CAGR'])
         return df
+
+    def get_monte_carlo(self, n: int = 100, kind: str = 'mean') -> pd.DataFrame:
+        """
+        Generate N random risk / cagr point for portfolios.
+        Risk and cagr are calculated for a set of random weights.
+        """
+        weights_series = Float.get_random_weights(n, self.ror.shape[1])
+
+        # Portfolio risk and return for each set of weights
+        random_portfolios = pd.DataFrame(dtype=float)
+        for weights in weights_series:
+            risk_monthly = Frame.get_portfolio_risk(weights, self.ror)
+            mean_return_monthly = Frame.get_portfolio_mean_return(weights, self.ror)
+            risk = Float.annualize_risk(risk_monthly, mean_return_monthly)
+            mean_return = Float.annualize_return(mean_return_monthly)
+            if kind == 'cagr':
+                cagr = Float.approx_return_risk_adjusted(mean_return, risk)
+                row = dict(Risk=risk, CAGR=cagr)
+            elif kind == 'mean':
+                row = dict(Risk=risk, Return=mean_return)
+            else:
+                raise ValueError('kind should be "mean" or "cagr"')
+            random_portfolios = random_portfolios.append(row, ignore_index=True)
+        return random_portfolios

okama/frontier.py

@@ -490,16 +490,10 @@ def ef_points(self) -> pd.DataFrame:
 
     def get_monte_carlo(self, n: int = 100) -> pd.DataFrame:
         """
-        Calculates random risk / cagr point for rebalanced portfolios for a given asset list.
+        Generate N random risk / cagr point for rebalanced portfolios.
         Risk and cagr are calculated for a set of random weights.
         """
-        # Random weights
-        rand_nos = np.random.rand(n, self.ror.shape[1])
-        weights_transposed = rand_nos.transpose() / rand_nos.sum(axis=1)
-        weights = weights_transposed.transpose()
-        weights_df = pd.DataFrame(weights)
-        # weights_df = weights_df.aggregate(list, axis=1)  # Converts df to DataFrame of lists
-        weights_df = weights_df.aggregate(np.array, axis=1)  # Converts df to DataFrame of np.array
+        weights_df = Float.get_random_weights(n, self.ror.shape[1])
 
         # Portfolio risk and cagr for each set of weights
         portfolios_ror = weights_df.aggregate(Rebalance.rebalanced_portfolio_return_ts, ror=self.ror, period=self.reb_period)

okama/frontier_reb.py

@@ -53,6 +53,18 @@ def approx_return_risk_adjusted(mean_return: float, std: float) -> float:
         """
         return np.exp(np.log(1. + mean_return) - 0.5 * std ** 2 / (1. + mean_return) ** 2) - 1.
 
+    @staticmethod
+    def get_random_weights(n: int, w_shape: int) -> pd.Series:
+        """
+        Produce N random normalized weights of a given shape.
+        """
+        # Random weights
+        rand_nos = np.random.rand(n, w_shape)
+        weights_transposed = rand_nos.transpose() / rand_nos.sum(axis=1)
+        weights = weights_transposed.transpose()
+        weights_df = pd.DataFrame(weights)
+        return weights_df.aggregate(np.array, axis=1)  # Converts df to DataFrame of np.array
+
 
 class Frame:
     """
@@ -81,41 +93,14 @@ def get_portfolio_return_ts(cls, weights: list, ror: pd.DataFrame) -> pd.Series:
     @classmethod
     def get_portfolio_mean_return(cls, weights: list, ror: pd.DataFrame) -> float:
         """
-        Computes mean return of a portfolio (month scale).
+        Computes mean return of a portfolio (monthly).
         """
         # cls.weights_sum_is_one(weights)
         weights = np.asarray(weights)
         if isinstance(ror.mean(), float):  # required for a single asset portfolio
             return ror.mean()
         return weights.T @ ror.mean()
 
-    @staticmethod
-    def get_ror(close_ts: pd.Series, period: str = 'M') -> pd.Series:
-        """
-        Calculates rate of return time series given a close ts.
-        Periods:
-        'D' - daily return
-        'M' - monthly return
-        """
-        if period == 'D':
-            ror = close_ts.pct_change().iloc[1:]
-            return ror
-        if period == 'M':
-            close_ts = close_ts.resample('M').last()
-            # Replacing zeroes by NaN and padding
-            # TODO: replace with pd .where(condition, value, inplace=True)
-            if (close_ts == 0).any():
-                toxic = close_ts[close_ts == 0]
-                for i in toxic.index:
-                    close_ts[i] = None
-                close_ts.fillna(method='backfill', inplace=True, limit=3)
-                if close_ts.isna().any():
-                    raise Exception("Too many NaN or zeros in data. Can't pad the data.")
-            ror = close_ts.pct_change().iloc[1:]
-            return ror
-        else:
-            raise TypeError(f"{period} is not a supported period")
-
     @staticmethod
     def get_cagr(ror: Union[pd.DataFrame, pd.Series]) -> Union[pd.Series, float]:
         """

okama/helpers.py

@@ -35,7 +35,6 @@ def plot_assets(self, kind='mean', tickers='tickers', pct_values=False) -> plt.a
         Plots assets scatter (annual risks, annual returns) with the tickers annotations.
         type:
         mean - mean return
-        cagr_app - CAGR by approximation
         cagr - CAGR from monthly returns time series
         tickers:
         - 'tickers' - shows tickers values (default)
@@ -45,12 +44,14 @@ def plot_assets(self, kind='mean', tickers='tickers', pct_values=False) -> plt.a
         if kind == 'mean':
             risks = self.risk_annual
             returns = Float.annualize_return(self.ror.mean())
-        elif kind == 'cagr_app':
-            risks = self.risk_annual
-            returns = Float.approx_return_risk_adjusted(Float.annualize_return(self.ror.mean()), risks)
+        # elif kind == 'cagr_app':
+        #     risks = self.risk_annual
+        #     returns = Float.approx_return_risk_adjusted(Float.annualize_return(self.ror.mean()), risks)
         elif kind == 'cagr':
             risks = self.risk_annual
             returns = self.get_cagr().loc[self.symbols]
+        else:
+            raise ValueError('kind should be "mean", "cagr" or "cagr_app".')
         # set lists for single point scatter
         if len(self.symbols) < 2:
             risks = [risks]

okama/plots.py

@@ -1,15 +1,32 @@
 from setuptools import setup
+import codecs
+import os.path
 
 # read the contents of README file
-from os import path
-
-this_directory = path.abspath(path.dirname(__file__))
-with open(path.join(this_directory, 'README.md'), encoding='utf-8') as f:
+this_directory = os.path.abspath(os.path.dirname(__file__))
+with open(os.path.join(this_directory, 'README.md'), encoding='utf-8') as f:
     long_description = f.read()
 
+
+# read version information from __init__.py
+def read(rel_path):
+    here = os.path.abspath(os.path.dirname(__file__))
+    with codecs.open(os.path.join(here, rel_path), 'r') as fp:
+        return fp.read()
+
+
+def get_version(rel_path):
+    for line in read(rel_path).splitlines():
+        if line.startswith('__version__'):
+            delim = '"' if '"' in line else "'"
+            return line.split(delim)[1]
+    else:
+        raise RuntimeError("Unable to find version string.")
+
+
 setup(
     name='okama',
-    version='0.90',
+    version=get_version("okama/__init__.py"),
     license='MIT',
     description='Modern Portfolio Theory (MPT) Python package',
     long_description=long_description,