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Also hydromatic, automatic: Rob Carvers blog. It's Geeks Enlightening least with a spreadsheet. The method aims to achieve the following goals: This is the third in a series of posts on the handcrafting method. This will be a 'twin track' post; in which I'll outline two implementations: repeated backtest. It's also great for understanding the intution of the method - a big plus point of this technique. as*ets is done manually in the spreadsheet based method, but automatically here based on the correlation matrix). The code can be To demonstrate the implementation I'm going to need some data. This won't be the full blown real data that I'll be using to test the US10, US20; from 2014 to the present (since for some of these instruments I only have data for the last 5 years). Because this isn't a proper test I won't be doing any fancy rolling out of sample optimisation, just a single portfolio. (I've written the handcrafting functions to be standalone; when I come to testing them with real data I'll show you how to hook these into Here are the stages involved in the handcrafting method. Note there are a few options involved: level, proceeding upwards. These weights will either be equal, or use the candidate matching technique described in the previous post. Hopefully it's fairly self explanatory. There could be some debate about whether Eurodollar and bonds should be glued together, but part of doing it this way was to see if the diversification multiplier fixes this potential mistake. Notice that for most groups there are only one or two as*ets, so things are relatively trivial. Then at the top level (level 1) we have three as*ets, so things are a bit more fun. I use a simple average of correlations to construct a correlation matrix for the top level groups. Then I use a weighted average of two candidate matrices to work out the required weights for the top level groups.. SPREADSHEET: CALCULATE SHARPE RATIO ADJUSTMENTS (OPTIONALLY) You should follow the calculations down the page, as they are done in a bottom up fashion. I haven't bothered with interpolating the