Portfolios that Beat Markets
In constructing portfolios that are expected to beat markets, we need to look at how portfolio returns(in excess of markets) vary with relative risk measure (relative to the markets). The risk measure that is usually used is the 'beta'. Using non-extensive statistical mechanics, we define a new risk measure called 'Tsallis relative Entropy' (TRE). A description of the new measure, the historic performance of the portfolios based on this measure and a step by step tutorial on how to construct and manage the portfolios are given in the following.
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