## Working with Group Ratio Constraints Using Portfolio Object

Group ratio constraints are optional linear constraints that
maintain bounds on proportional relationships among groups of assets
(see Group Ratio Constraints).
Although the constraints are implemented as general constraints, the
usual convention is to specify a pair of group matrices that identify
membership of each asset within specific groups with Boolean indicators
(either `true`

or `false`

or with `1`

or `0`

)
for each element in each of the group matrices. The goal is to ensure
that the ratio of a base group compared to a comparison group fall
within specified bounds. Group ratio constraints have properties:

`GroupA`

for the base membership matrix`GroupB`

for the comparison membership matrix`LowerRatio`

for the lower-bound constraint on the ratio of groups`UpperRatio`

for the upper-bound constraint on the ratio of groups

### Setting Group Ratio Constraints Using the `Portfolio`

Function

The properties for group ratio constraints are set using the `Portfolio`

object. For example, assume
that you want the ratio of financial to nonfinancial companies in your portfolios to
never go above 50%. Suppose that you have six assets with three financial companies
(assets 1–3) and three nonfinancial companies (assets 4–6). To set group ratio
constraints:

GA = [ 1 1 1 0 0 0 ]; % financial companies GB = [ 0 0 0 1 1 1 ]; % nonfinancial companies p = Portfolio('GroupA', GA, 'GroupB', GB, 'UpperRatio', 0.5); disp(p.NumAssets) disp(p.GroupA) disp(p.GroupB) disp(p.UpperRatio)

6 1 1 1 0 0 0 0 0 0 1 1 1 0.5000

Group matrices `GA`

and `GB`

in this example can be logical
matrices with `true`

and `false`

elements that
yield the same
result:

GA = [ true true true false false false ]; % financial companies GB = [ false false false true true true ]; % nonfinancial companies p = Portfolio('GroupA', GA, 'GroupB', GB, 'UpperRatio', 0.5); disp(p.NumAssets) disp(p.GroupA) disp(p.GroupB) disp(p.UpperRatio)

6 1 1 1 0 0 0 0 0 0 1 1 1 0.5000

### Setting Group Ratio Constraints Using the `setGroupRatio`

and `addGroupRatio`

Functions

You can also set the properties for group ratio constraints using `setGroupRatio`

. For example, assume
that you want the ratio of financial to nonfinancial companies in your portfolios to
never go above 50%. Suppose that you have six assets with three financial companies
(assets 1–3) and three nonfinancial companies (assets 4–6). Given a
`Portfolio`

object `p`

, use `setGroupRatio`

to set the group
constraints:

GA = [ true true true false false false ]; % financial companies GB = [ false false false true true true ]; % nonfinancial companies p = Portfolio; p = setGroupRatio(p, GA, GB, [], 0.5); disp(p.NumAssets) disp(p.GroupA) disp(p.GroupB) disp(p.UpperRatio)

6 1 1 1 0 0 0 0 0 0 1 1 1 0.5000

`LowerRatio`

property to be empty
(`[]`

).Suppose that you want to add another group ratio constraint to ensure that the weights in
odd-numbered assets constitute at least 20% of the weights in nonfinancial assets
your portfolio. You can set up augmented group ratio matrices and introduce infinite
bounds for unconstrained group ratio bounds, or you can use the `addGroupRatio`

function to build up
group ratio constraints. For this example, create another group matrix for the
second group constraint:

p = Portfolio; GA = [ true true true false false false ]; % financial companies GB = [ false false false true true true ]; % nonfinancial companies p = setGroupRatio(p, GA, GB, [], 0.5); GA = [ true false true false true false ]; % odd-numbered companies GB = [ false false false true true true ]; % nonfinancial companies p = addGroupRatio(p, GA, GB, 0.2); disp(p.NumAssets) disp(p.GroupA) disp(p.GroupB) disp(p.LowerRatio) disp(p.UpperRatio)

6 1 1 1 0 0 0 1 0 1 0 1 0 0 0 0 1 1 1 0 0 0 1 1 1 -Inf 0.2000 0.5000 Inf

`addGroupRatio`

determines which
bounds are unbounded so you only need to focus on the constraints you want to
set.The `Portfolio`

object, `setGroupRatio`

, and `addGroupRatio`

implement scalar
expansion on either the `LowerRatio`

or
`UpperRatio`

properties based on the dimension of the group
matrices in `GroupA`

and `GroupB`

properties.

## See Also

`Portfolio`

| `setDefaultConstraints`

| `setBounds`

| `setBudget`

| `setConditionalBudget`

| `setGroups`

| `setGroupRatio`

| `setEquality`

| `setInequality`

| `setTurnover`

| `setOneWayTurnover`

| `setTrackingPort`

| `setTrackingError`

## Related Examples

- Creating the Portfolio Object
- Working with Portfolio Constraints Using Defaults
- Validate the Portfolio Problem for Portfolio Object
- Estimate Efficient Portfolios for Entire Efficient Frontier for Portfolio Object
- Estimate Efficient Frontiers for Portfolio Object
- Constraint Specification Using a Portfolio Object
- Asset Allocation Case Study
- Portfolio Optimization Examples Using Financial Toolbox
- Portfolio Optimization with Semicontinuous and Cardinality Constraints
- Black-Litterman Portfolio Optimization Using Financial Toolbox
- Portfolio Optimization Using Factor Models
- Portfolio Optimization Using Social Performance Measure
- Diversify Portfolios Using Custom Objective

## More About

- Portfolio Object
- Portfolio Optimization Theory
- Portfolio Object Workflow
- Setting Up a Tracking Portfolio