The Minimum Correlation Algorithm: Rethinking Portfolio Diversification Through Mathematical Elegance

Fabio Capela
Portfolio optimization , Quantitative finance , Diversification strategies , Risk management , Algorithmic trading , Modern portfolio theory , Asset allocation , Investment mathematics

“Don’t put all your eggs in one basket” – this timeless wisdom has evolved into one of finance’s most fundamental principles. Yet despite diversification’s universal acceptance, its mathematical underpinnings remain poorly understood by most practitioners. The conventional approach treats diversification as simply holding many assets, but this perspective misses the profound mathematical reality that drives risk reduction in portfolios.

Is 2025 Actually More Chaotic Than Other Years? (And What to Do About It)

I’ve heard this phrase dozens of times in 2025—from fellow investors, financial media, and even seasoned portfolio managers. There’s a pervasive sense that something fundamental has shifted, that traditional relationships between assets have broken down, and that we’re navigating uncharted territory.

The Hidden Reality of High Sharpe Ratios: Why Even Elite Strategies Face Monthly Losses

The Sharpe ratio stands as one of finance’s most celebrated metrics, elegantly capturing risk-adjusted returns in a single number. An annualized Sharpe ratio of 2.0 sounds impressive—it represents exceptional risk-adjusted performance that places a strategy in the top tier of investment approaches. Yet here lies a reality that surprises many investors: even strategies with outstanding annualized Sharpe ratios experience negative months far more frequently than intuition suggests.

Variability Drain: The Silent Killer of Long-Term Compounding

You spend years refining your strategy. You optimize your entries and exits. You backtest it across decades. On paper, it shows strong returns. Maybe even impressive alpha. But something keeps bothering you. Despite solid average returns, your portfolio isn’t growing the way you expect. You’re not losing in any dramatic way — no catastrophic drawdowns, no obvious mistakes. But something subtle is bleeding your wealth. Quietly. Relentlessly.

Why I Never Use Stop Losses (And You Shouldn't Either)

“You should always use stop losses.”

I’ve heard this advice countless times from financial advisors, trading courses, and investment books. It’s supposed to be one of the fundamental rules of risk management—set a level where you’ll cut your losses and stick to it no matter what.

How Fractional Differencing Revolutionized My Feature Engineering for Investment Strategies

As a theoretical physicist turned systematic investor, I’ve always been fascinated by the mathematical structures underlying financial markets. While most investors focus on price movements and traditional technical indicators, I discovered that the real edge comes from understanding the deeper statistical properties of market data—particularly how to extract meaningful features that preserve both trend information and stationarity.

Why I Stopped Believing You Have to Choose Between High Returns and Low Risk

Every investor gets told the same story: if you want high returns, you have to accept high risk. Want to play it safe? You’ll have to settle for mediocre returns. It’s supposedly the fundamental law of investing, as immutable as gravity.

The One Number That Changed How I Think About Investment Risk

For years, I focused on the wrong metric when evaluating my investment performance. Like most investors, I obsessed over returns. How much did I make this month? How much did I make this year? How did my portfolio compare to the S&P 500?

How I Built an Investment Strategy That Beat the S&P 500 by 8% Annually for 8 Years

Eight years ago, I was frustrated. Like most investors, I was putting money into index funds and watching my portfolio swing wildly with every market tantrum. The conventional wisdom said I should just “buy and hold” the S&P 500, but watching 20% drawdowns every few years while barely beating inflation didn’t feel like a winning strategy.

Why Index Funds Are Sabotaging Your FIRE Timeline: The Systematic Solution

Most FIRE investors are unknowingly adding 5+ years to their retirement timeline by sticking with “safe” index funds. While the investment world preaches the gospel of passive investing, a growing number of sophisticated investors are achieving Financial Independence faster through systematic strategies.

Why Most DIY Investors Underperform (and How to Fix It)

The promise of DIY investing is appealing: take control of your financial future, avoid advisor fees, and potentially beat the market. Yet research consistently shows that self-directed investors typically underperform major market indices by a significant margin.

Systematic Investing