Investment Strategy Optimization Tutorial

Leveraging Fractio API for Creating and Optimizing Investment Strategies

In this advanced tutorial, we'll explore how to use the Fractio API to create and optimize investment strategies for real estate portfolios. We'll cover data analysis, predictive modeling, and portfolio optimization techniques.

1. Fetching Historical Property Data

First, let's retrieve historical property data using the Fractio API:

const axios = require('axios');

async function fetchHistoricalData(propertyId, startDate, endDate) {
  try {
    const response = await axios.get(`https://api.fractio.com/v1/properties/${propertyId}/historical`, {
      params: { start_date: startDate, end_date: endDate },
      headers: { 'Authorization': 'Bearer YOUR_API_KEY' }
    });
    return response.data;
  } catch (error) {
    console.error('Error fetching historical data:', error);
  }
}

// Usage
const propertyId = '12345';
const startDate = '2020-01-01';
const endDate = '2023-04-30';
fetchHistoricalData(propertyId, startDate, endDate).then(data => console.log(data));
        

2. Analyzing Property Performance

Next, let's create a function to calculate key performance metrics:

function calculateMetrics(historicalData) {
  const returns = [];
  for (let i = 1; i < historicalData.length; i++) {
    returns.push((historicalData[i].value - historicalData[i-1].value) / historicalData[i-1].value);
  }
  
  const averageReturn = returns.reduce((sum, r) => sum + r, 0) / returns.length;
  const volatility = Math.sqrt(returns.reduce((sum, r) => sum + Math.pow(r - averageReturn, 2), 0) / returns.length);
  
  return {
    averageReturn,
    volatility,
    sharpeRatio: averageReturn / volatility
  };
}
        

3. Implementing a Basic Portfolio Optimization Algorithm

Now, let's implement a simple portfolio optimization algorithm using the Modern Portfolio Theory:

function optimizePortfolio(assets, riskFreeRate = 0.02) {
  const n = assets.length;
  let bestSharpeRatio = -Infinity;
  let bestWeights = [];

  for (let i = 0; i < 10000; i++) {
    const weights = generateRandomWeights(n);
    const portfolioReturn = calculatePortfolioReturn(assets, weights);
    const portfolioVolatility = calculatePortfolioVolatility(assets, weights);
    const sharpeRatio = (portfolioReturn - riskFreeRate) / portfolioVolatility;

    if (sharpeRatio > bestSharpeRatio) {
      bestSharpeRatio = sharpeRatio;
      bestWeights = weights;
    }
  }

  return { bestWeights, bestSharpeRatio };
}

function generateRandomWeights(n) {
  const weights = Array.from({ length: n }, () => Math.random());
  const sum = weights.reduce((a, b) => a + b, 0);
  return weights.map(w => w / sum);
}

function calculatePortfolioReturn(assets, weights) {
  return assets.reduce((sum, asset, i) => sum + asset.averageReturn * weights[i], 0);
}

function calculatePortfolioVolatility(assets, weights) {
  // This is a simplified calculation. In practice, you'd use a covariance matrix.
  return Math.sqrt(assets.reduce((sum, asset, i) => sum + Math.pow(asset.volatility * weights[i], 2), 0));
}
        

4. Putting It All Together

Now, let's use our functions to optimize a portfolio of properties:

async function optimizeRealEstatePortfolio(propertyIds) {
  const assets = await Promise.all(propertyIds.map(async (id) => {
    const historicalData = await fetchHistoricalData(id, '2020-01-01', '2023-04-30');
    return calculateMetrics(historicalData);
  }));

  const { bestWeights, bestSharpeRatio } = optimizePortfolio(assets);

  console.log('Optimal Portfolio Weights:', bestWeights);
  console.log('Portfolio Sharpe Ratio:', bestSharpeRatio);

  return { bestWeights, bestSharpeRatio };
}

// Usage
const propertyIds = ['12345', '67890', '24680', '13579'];
optimizeRealEstatePortfolio(propertyIds);
        

5. Visualizing the Results

Let's create a chart to visualize our optimized portfolio allocation:

Conclusion

In this tutorial, we've explored how to use the Fractio API to fetch historical property data, analyze performance, and implement a basic portfolio optimization algorithm. This approach can help investors make data-driven decisions and potentially improve their real estate investment strategies.