Hi,

I have a portfolio of securities that I like to determine the optimal
asset allocation using something simple as Markowitz (Mean-Variance). I
have the problem that some of the securities in the portfolio are highly
correlated. I would like to reduce my security set, or covariance matrix
before running the optimization, using something like PCA or clustering.
I was wondering if someone has done any work that might shed some like
on the process.? Is there piece of literature that some one can
recommend?

Thanks,

Jorge Nieves



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