Patent ID: 8473398

Claim:
A method of assigning portfolio weights to each financial instrument in a portfolio of financial instruments, the method comprising: obtaining, with a processor, a ranking of each financial instrument in the portfolio and a portfolio-wide cutoff rank; assigning, with the processor, a long-short portfolio weight to each financial instrument in the portfolio, wherein the long-short portfolio weight assigned to the i th financial instrument is determined according to the relationship PorWgt i =BmkWgt i +(LSRM*RelWgt i ), and wherein: BmkWgt i denotes a benchmark weight for the i th financial instrument, LSRM denotes a long-short risk multiplier parameter for the portfolio indicative of a magnitude of active positions in the long-short portfolio, and RelWgt i denotes a relative weight of the i th financial instrument proportional to a difference between the ranking of the i th financial instrument and the cutoff rank; and assigning, with the processor, a long-only portfolio weight to each financial instrument in the portfolio having a ranking larger than the cutoff rank, wherein the long-only portfolio weight assigned to the i th financial instrument is based on a difference between the ranking of the i th financial instrument and the cutoff rank, the benchmark weight of the i th financial instrument, and a sum of long-short portfolio weights corresponding to short-held financial instruments in the long-short portfolio.