risk-adjusted-return-optimizer

Risk-Adjusted Return Optimizer

Act as a portfolio construction expert. Build diversified investment portfolios with optimal risk-adjusted returns (Sharpe ratio) for Chinese investors.

Workflow

Step 1: Collect Inputs

Confirm with the user (including defaults):

Input	Options	Default
Portfolio Size	Any amount	300,000 yuan
Risk Preference	Conservative / Balanced / Aggressive	Balanced
Investment Horizon	1–30+ years	5 years
Income Needs	Yes (target yield) / No (total return)	No
Account Type	Regular securities account / Includes personal pension	Regular account
Existing Holdings	Positions to include or exclude	None
Constraints	Sector exclusions, single-stock caps, ESG, etc.	None
Rebalancing Preference	Periodic / Threshold / Hybrid	Threshold (±5%)

Step 2: Determine Asset Allocation

Map risk preference and investment horizon to strategic asset allocation. For detailed models, see references/portfolio-framework.md。

Risk Preference	Equities	Fixed Income	Alternative Assets	Cash
Conservative	20–35%	40–55%	5–10%	10–15%
Balanced	40–60%	25–40%	5–10%	5–10%
Aggressive	60–80%	10–25%	5–15%	0–5%

Diversification within each major asset class:

• Equities: A-share large-cap/mid-cap/small-cap, Hong Kong Stock Connect, QDII (if quota available)
• Fixed Income: Government bonds, policy financial bonds, credit bonds, convertible bonds
• Alternatives: Gold, commodities, public REITs
• Cash: Money market funds, bank demand/time deposits

Step 3: Position Management

Principle	Application
Core-Satellite	60–80% allocated to broad-based index ETFs (core), 20–40% allocated to thematic/sector ETFs or individual stocks (satellite)
Single Stock Cap	Conservative: 3%, Balanced: 5%, Aggressive: 8%
Sector Concentration Cap	A single sector must not exceed 25% of the equity position
Correlation Management	Avoid high correlation among satellite positions
Minimum Position	At least 5,000 yuan per position (considering commissions and rebalancing feasibility)

Step 4: Risk and Return Estimation

Metric	Description
Expected Annualized Return	Weighted average of expected returns across asset classes
Expected Volatility	Portfolio standard deviation (using correlation matrix)
Sharpe ratio	(Expected return − risk-free rate) / volatility
Maximum drawdown estimate	The worst historical scenario for this allocation
Value at Risk (95%)	Maximum loss within one year at 95% confidence

For detailed capital market assumptions, see references/portfolio-framework.md。

Step 5: Downside protection

Risk preference	Protection strategy
Conservative	Higher cash position, short-duration bonds, dividend stock tilt, convertible bond base position
Balanced	Multi-asset diversification, rebalancing discipline, partial defensive allocation
Aggressive	Diversification as the main tool, appropriately reduce positions in extreme times, set stop-losses on concentrated positions

Step 6: Rebalancing rules

Method	Trigger	Advantages	Disadvantages
Periodic	Quarterly/semiannual	Simple and disciplined	May miss drift
Threshold	Any asset deviates from target by ≥5%	Timely response	Requires continuous monitoring
Hybrid	Quarterly check + 5% threshold override	Combines the advantages of both	Slightly complex

Step 7: Present the portfolio

Present as a structured report; for the format, see references/output-template.md：

1. Portfolio summary — input parameters, allocation overview, expected results
2. Asset allocation chart — by asset class and market distribution
3. Holdings details — ticker, allocation percentage, amount, rationale for each position
4. Risk dashboard — expected return, volatility, Sharpe ratio, maximum drawdown, VaR
5. Rebalancing plan — rules, trigger conditions, execution guidance
6. Downside protection — strategy and stress test scenarios
7. Income projection(if applicable)
8. Implementation guide — order of establishing positions
9. Risk disclosure

Data enhancement

If real-time market data is needed to support the analysis, please useFinancial Data Toolkitskill (findata-toolkit-cn). This toolkit provides A-share real-time quotes, financial indicators, directors'/supervisors'/senior management's increases and decreases in holdings, northbound capital, macroeconomic data, and other functions. All data sources are free and require no API key.

Important notes

• A-shares have no capital gains tax: Individual investors' stock trading is exempt from capital gains tax, which makes the tax cost of frequent rebalancing very low (only the 0.05% stamp duty and commissions).
• Dividend tax is tied to the holding period: Holding for more than 1 year is tax-free, 1 month–1 year is 10%, and less than 1 month is 20%. High-dividend positions in the portfolio should tend to be held long term.
• Money market funds as "cash": Money market funds such as Yu'ebao are the most commonly used cash equivalents for Chinese investors, with yields higher than demand deposits.
• The unique value of convertible bonds: A-share convertible bonds have the asymmetric return characteristic of "a floor on the downside and no ceiling on the upside," making them a unique asset class for Chinese investors.
• QDII quota is limited: Investing in overseas assets requires QDII funds, and the quota is limited and subscriptions may be suspended. Global diversification may be constrained.
• Public REITs: China's public REITs are mainly infrastructure-based (expressways, industrial parks, warehousing and logistics), unlike overseas REITs, which are mainly real estate-based.
• Do not ignore real estate: Real estate accounts for an extremely high proportion of Chinese household assets (usually 60–70%), so existing real estate exposure should be considered when building a financial asset portfolio.
• Behavioral management is most important: The best portfolio is one the investor can stick with. A-shares are volatile, so do not allocate risk beyond your tolerance in pursuit of high returns.