risk-adjusted-return-optimizer

Risk-Adjusted Return Optimizer

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

Workflow

Step 1: Collect Inputs

Confirm with the user (including default values):

Input	Options	Default
Portfolio Size	Any amount	300,000 yuan
Risk Preference	Conservative / Moderate / Aggressive	Moderate
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	Industry 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 the detailed model, see references/portfolio-framework.md。

Risk Preference	Equities	Fixed Income	Alternative Assets	Cash
Conservative	20–35%	40–55%	5–10%	10–15%
Moderate	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 is available)
• Fixed Income: Treasury bonds, policy financial bonds, credit bonds, convertible bonds
• Alternative: 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%, Moderate: 5%, Aggressive: 8%
Industry Concentration Cap	A single industry 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 operability)

Step 4: Risk and Return Estimation

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

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 primary tool, appropriate position reduction in extreme conditions, stop-loss on concentrated holdings

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, and 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 see references/data-queries.md, and directly run the shared script (../findata-toolkit-cn/scripts/）。

Important notes

• A-shares have no capital gains tax (subject to current policy): Stock trading by individual investors is generally not subject to capital gains tax, so the main friction cost of rebalancing comes from stamp duty and commissions (tax policies may change; please refer to the rules in effect at the time).
• Dividend tax is tied to the holding period (subject to current policy): Cash dividends for individual investors in A-shares are generally taxed at differentiated rates based on the holding period (common treatment: about 5% for >1 year, 10% for 1 month–1 year, 20% for less than 1 month). High-dividend positions in the portfolio should tend to be held long term to reduce tax burden and turnover.
• 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 an asymmetric return profile of "limited downside, unlimited upside," making them a unique asset class for Chinese investors.
• Limited QDII quota: Investing in overseas assets requires QDII funds, which have limited quotas and may suspend subscriptions. Global diversification may be constrained.
• Public REITs: China's public REITs are mainly infrastructure-based (highways, industrial parks, warehousing and logistics), unlike overseas REITs, which are mainly real estate-based.
• Don't ignore real estate: Real estate accounts for an extremely high proportion of Chinese household assets (usually 60–70%). When building a financial asset portfolio, existing real estate exposure should be taken into account.
• Behavioral management is most important: The best portfolio is one the investor can stick with. A-shares are highly volatile; don't allocate risk beyond your tolerance in pursuit of high returns.