Too often, the quantification of risk is left to hunch, intuition and gut feel or at best a “sensitivity analysis” or a “best-case. worst-case” analysis. Without a probabilistic estimate of risk, the estimate of a risk-adjusted return is problematic.
Adding hotels with lower returns and higher risk to a portfolio may actually boost performance. By using Mean-Variance Optimization, investors can increase returns and reduce risk by either fine-tuning or repositioning their portfolios.