Control turnover


Restrict turnover in the optimization process.


This presumes that you can do a basic portfolio optimization.  For example, that you have mastered “Passive, no benchmark (minimum variance)”.

  • Portfolio Probe

You need to have the Portfolio Probe package loaded into your R session:


If you don’t have Portfolio Probe, see “Demo or Buy”.

Doing the example

 Doing it

We perform an optimization with a limit on turnover (buys plus sells):

opTurnover <- trade.optimizer(priceVector, 
   variance=xaLWvar06, existing=curPortfol, 
   gross=grossVal, long.only=TRUE, port.size=10, 

(This command will produce a warning about utility that can be ignored.)

The value of the trade is:

> valuation(opTurnover$trade, priceVector)$total
   gross      net     long    short 
99998.42 19700.18 59849.30 40149.12

We imposed the constraint that the the turnover should be no more than 100,000 currency units.  The trade is very close to that limit — about 1.6 away.


The turnover argument takes a number in currency units that gives the upper limit on how much trading (buys plus sells) can take place.  It is possible to give a range for the turnover — so there is a lower limit for turnover as well — but that is unlikely to be of use in optimization.

The example command produces a warning.  The warning is because the default utility is to maximize the information ratio but the command does not include expected returns.  Hence the default utility can not be done and it switches to minimizing variance.  The easiest way to avoid the warning is to specify the utility.  The other way to avoid the warning is to suppress it via the do.warn mechanism.

It is good practice to eliminate all of the warnings that you expect so that you always pay attention to warnings.  Unexpected warnings may well be an indication of a mistake.

See also