Diversificaiton with Gsphere Frequently Asked Questions
Does G-Sphere support all asset classes and instruments?
Does Gravity Investments supply any data?
How frequently is the data updated?
How many assets can I use?
I just registered for the trial and I did not get a serial number in the mail?
What is the meaning of volume?
What is the meaning of color?
How does the G-Sphere handle cash?
How does the G-Sphere account for risk tolerance?
What does the G-Sphere represent?
What types of companies use the G-Sphere?
Who uses the G-Sphere?
What makes the G-Sphere different than existing programs?
Why would a professional investor or institution use the G-Sphere?
Will I need any training?
How does the G-Sphere determine the allocation weights?
Does the G-Sphere select my portfolio?
How do I tell the difference between a good portfolio and a poor portfolio?
How does the G-Sphere work?
Can I see what my present portfolio would look like using the G-Sphere?
What is an efficient portfolio?
Does the G-Sphere create an efficient portfolio?
What is the advantage of using the G-Sphere?
Does the G-Sphere help achieve bigger returns?
Is the G-Sphere for short term trading or long term investing?
How are returns calculated?
Can I use options?
What criteria may I use to generate the model?
Does the G-Sphere work with other software analytical suites?
Can the G-Sphere incorporate personal investments like real estate, and insurance?
Once I build a portfolio how can I invest in the underlying securities?
How often should my portfolio be rebalanced?
I noticed that a vector angle appears different from what I expected, knowing the correlation. Why is this?
Does G-Sphere support all asset classes and instruments?
The G-Sphere can create optimal portfolio from asset classes or with specific securities. The G-Sphere accepts any type of investment. Stocks, bonds, futures, mutual funds, hedge funds, private equity, real estate, managed accounts, etc. Even more, it can model things that are not investments, so long as a correlation between the candidates can be computed or estimated.
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Does Gravity Investments supply any data?
Yes. We provide: Stocks, ETF's Mutual Funds, Futures, Energies, Options, Indices and Economic Indicators. Other data can be custom fit, available at additional change or imported with Excel. Our database contains about 90,000 assets.
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How frequently is the data updated?
Daily, or as released.
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How Many assets can I use?
There is no formal limitation. However, as more assets are added the space used to model them becomes more crowded and the resulting portfolio model will visually overstate diversification. This begins to impact the model around 40 assets. For larger portfolios we recommend grouping the assets into sub portfolios and optimizing first within the asset classes. You can them optimize each sub portfolio within the sub universe.
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I just registered for the trial and I did not get a serial number in the mail?
It is almost always due to an error entering the email address. Please re-register and ensure a valid email.
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What is the meaning of volume?
Volume is equal to the amount of capital to invest.
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What is the meaning of color?
Color is mapped to any available statistic and the color spectrum can be customized to clarify the visualization. G-Sphere calculates a high and low value form the selected statistic, determining a range, and each asset's color is mapped to a point in the spectrum relative to spatial relationship to the range with the high and low values anchoring the spectrum.
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How does the G-Sphere handle cash?
Cash is always automatically assigned to the universe and becomes the origin of the model. Cash, like any other asset is only efficient if it helps make up the exterior of the model. The return on cash assets is determined by the user.
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How does the G-Sphere account for risk tolerance?
The G-Sphere creates a globally efficient portfolio. A maximum diversification portfolio can be suitable for anyone. Therefore, such risk profile and risk tolerance considerations are not required. To the extent that limitations are imposed they arise while selecting the universe of investment candidates. It is advisable that portfolios are reviewed to ensure compatibility with an investors liquidity requirements.
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What does the G-Sphere represent?
G-Sphere equates portfolio diversification (or portfolio balance) to symmetry (or physical balance). Therefore the more round a model portfolio is the more balanced the portfolio is. The G-Sphere models an optimal investment portfolio. It depicts individual securities and positions that, taken in aggregate, form the portfolio. Part of the model's function is to showcase how these different investments relate to each other. Therefore, not only are the individual positions easily visible, the relationship between all of the separate components is shown and the sum of the parts is graphed.
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What types of Companies use the G-Sphere?
G-Sphere is used by both buy side and sell side firms. G-Sphere Software is designed for anyone who manages money or advises on client portfolios. Our primary markets are investment and financial advisors especially those involved in alternative assets and absolute return investing. Hedge funds, funds of funds, pension funds, mutual funds, financial planners, family offices, endowments, Broker-Dealers, and sophisticated individual investors all use the G-Sphere.
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Who uses the G-Sphere?
The types of titles of people in these organizations that use the software are Investment Advisors and financial advisors, Portfolio & Risk Mangers, Researchers & Analysts, Marketing & Relationship Managers Sales Representatives & Assistants. If you use are involved with creating or presenting investments or portfolios this is for you.
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What makes the G-Sphere different than existing programs?
G-Sphere utilized Diversification Optimization (Correlated Vector Dominated Region Allocation Model) as it's optimization engine, most other programs still use Mean Variance Optimization (MVO).
The G-Sphere was created under an analytical framework similar to Modern Portfolio Theory. They are similar in that they each use the same variables to determine the model and both models minimize risks and maximize returns. However the solutions are obtained in radically different fashion. We separate diversification from the broad category of risk. The G-Sphere is a holistic system that relies on the geometric information to obtain the results. The G-Sphere creates only one globally efficient portfolio, rather than the array of efficient portfolios in the efficient frontier. Top
Why would a professional investor or institution use the G-Sphere?
For an investor on the buy side, benefits include groundbreaking data visualization, asset allocation and risk management. Portfolio rebalancing methods will be of greater utility with portfolios constructed with the G-Sphere. You can rest assured that any portfolio built with the G-Sphere is at an optimal performance level.
Professionals on the sell side can use the G-Sphere as a powerful marketing tool. It can be integrated to a website as a sticky web-based attraction. It eases the ability to communicate and sell sophisticated allocation strategies and traditionally confusing but correlationally-advantaged products like venture capital and hedge funds. One can dramatically reduce potential liability from matters of prudence and suitability. The G-Sphere will help earn and retain important clients and provides that extra pizzazz during any presentation.
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Will I need any training?
No. If you understand the Diversification Optimization method it is usually sufficient to start building and analyzing portfolios. Part of the application involves exploring portfolios by making changes in the inputs. If you feel that your company needs training we can provide training either online or onsite for a small extra fee. These training exercises can help your salesforce become very efficient with the G-Sphere and is designed in a way to help their overall productivity.
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How does the G-Sphere determine the allocation weights?
It is all based on geometry. The assets are assigned optimal weights based on a pro rata volume contribution. After all the inefficient assets have been eliminated, the remaining assets divide the volume of the model portfolio by determining which asset space inside the efficient frame is closest to. The procedure is called Voronoi volume or Voronoi regions.
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Does the G-Sphere select my portfolio?
Yes. After the users have explicitly defined their investment universe through various filters, sorts and user-specific criteria, the G-Sphere will graph all of the assets. In the process, the G-Sphere will select which of those assets should be included in the optimum investment portfolio. This portfolio management decisions are made based on diversification. The G-Sphere provides for an allocation percentage for each of the securities.
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How do I tell the difference between a good portfolio and a poor portfolio?
Follow two simple rules. Try to maximize the size of the G-Sphere; the bigger, the better. Second, try to make the G-Sphere symmetrical. The more symmetrical, or sphere-like the G-Sphere is the more balanced your portfolio becomes. When investments are in balance, risk is dramatically reduced.
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How does the G-Sphere work?
Please click here to see the Diversification Optimization white paper.
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Can I see what my present portfolio would look like using the G-Sphere?
You can see what an optimal portfolio would look like using your present portfolio as the candidate universe. The G-Sphere always shows optimal portfolios.
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What is an efficient portfolio?
An efficient portfolio is a portfolio that maximizes a favorable attribute and minimizes a negative attribute. Portfolio efficiency is often built with return and risk. In this case, a risk efficient portfolio shows that for any given level of risk there is no other portfolio that offers greater returns and for a given level of returns there is no other portfolio that offers less risk. Portfolio efficiency is valid when the minimization and maximization correspond to the individual user investment goals and objectives.
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Does the G-Sphere create an efficient portfolio?
Yes. The G-Sphere selects all of the assets that comprise an efficient portfolio by selecting those assets that lie on the surface of the model. After the point cloud graphs all the assets, a shell is wrapped around the data points. Only those assets contacting the portfolio shell compose the efficient portfolio. Those assets left interior to the model are considered dominated and inefficient.
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What is the advantage of using the G-Sphere?
A picture is worth one thousand words. The investment world is incredibly dynamic. Staying on top of investments is full time work, even for the most tenured practitioner. The G-Sphere allows the investor or investment manager to spend less time on portfolio analysis and asset allocation and focus more on getting new business or generating new trading ideas, picking the best stocks, bonds, sectors or countries and managing their positions. As a presentation tool, customers appreciate when you take a portfolio approach, by doing so you can expect credibility gains.
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Does the G-Sphere help achieve bigger returns?
The G-Sphere is more-so a tool to reduce investment risk. The returns you generate using the G-Sphere's allocation model depends on the criteria that you use when you select the investment universe, and it depends on your predictions of the assets you select. Portfolios created with the G-Sphere are often more stable and predictable. The G-Sphere allows investors to seek greater risk adjusted returns. Investors can use the G-Sphere to balance out their aggressive investments and make better investment decisions. If you excel at uncovering good investments, the G-Sphere will help. By reducing risk over the long term returns are often improved.
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Is the G-Sphere for short term trading or long term investing?
Both. You can change the data frequency (daily, weekly, monthly, quarterly or yearly) to match your expected holding period or time horizon. As a rule of thumb use an observation frequency that will allow at least twenty observations. So if your expected holding period or time until the next rebalance is one year, use a weekly observation. You can adjust you sample period to be indicative of you holding period.
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How are Returns calculated?
Returns are annualized using a stochastic geometric return. This means that compounding has been accounted for so that the return figure shows a value which actually represents the average annual return. This is per AIMR reporting standards.
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Can I use options?
Options prices are available with our basic data package. However building historical correlation matrices of options data is less reliable because options prices are sensitive to a variety of factors. If this is unacceptable to you, you may also enter specific correlation expectations or substitute the underlying security. We can work with customers to build a delta – gamma approximation model for simulating correlations.
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What criteria may I use to generate the model?
The normal inputs are risk and return, but these can be just about anything. G-Sphere allows for risk definitions of standard deviation, semi-variance and maximum draw-down. A user could enter any data expressed as a numerator and denominator. Denominators can be all set to 1 if only the numerator is desired. Using this system, users can substitute risk and return for any values they wish. Just make sure that the numerator shows numbers that get better with larger values and the denominator shows values that are better as they approach zero. Only positive numbers are considered.
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Does the G-Sphere work with other software analytical suites?
It depends. Some software vendors will be incorporating the G-Sphere as a module in their product suite. Contact your sales rep or Gravity Investments to learn if your vendor has plans for the G-Sphere. In some circumstances we will help with customization to ensure compatibility. You can use Excel to get data in and out of the G-Sphere. G-Sphere also come with an import and export function to help move data between applications.
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Can the G-Sphere incorporate personal investments like real estate, art and insurance?
Yes. Any investment that generates periodic returns can be imputed to the G-Sphere. If a user wants to put their own residence or investment property into the model they can use an appropriate local REIT as a proxy, import from Microsoft Excel or manually input the data.
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Once I build a portfolio how can I invest in the underlying securities?
You are free to conduct your transactions with any broker you choose. At Present the G-Sphere contains no automatic order generation.
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How often should my portfolio be rebalanced?
This depends on your business practice. Investment professionals that constantly generate new trading ideas should readjust their portfolios on a more frequent basis. Investors who have long time horizons should rebalance their portfolios every 3 - 16 months,. The G-Sphere makes portfolio-rebalancing work harder for you. The more diverse your asset base the greater the utility of rebalancing.
I noticed that a vector angle appears different from what I expected, knowing the correlation. Why is this?
The G-Sphere displays and calculates allocations based on an optimized correlation matrix. Differences between actual correlations and observed angles are natural and expected. The magnitude of such differences are a direct function of the genetic optimization’s error minimization objective function.
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