Something I've recently gotten into is asset allocation optimization and using AI (Extended Kalman Filter) & statistics in this area. Anyway, I was ready to move 100% into stocks so I put 80% into VTSAX (Vanguard Total Market Admiral) & 20% into VGTSAX (Vanguard Total Intl Stock)...
Anyway, using an excel document I put together with different weights for different portfolios I'm getting results that are telling me that a portfolio of 100% VTSAX dominates the portfolio that I have now.
I was always under the assumption that as long as two securities are less than perfectly correlated (i.e. 1), that the standard deviation/risk would be less than if I had put 100% into either of the securities.
VTSAX & VGTSX have a correlation coefficient of .889 meaning that they move together, but not perfectly. Does it even makes sense for me to put into VGTSX or international stocks if I have a portfolio of 100% domestic stocks that dominates any combination involving international stocks.
Using the utility function: E[x] - .5*A*sig^2 results in the highest utility of 100% VTSAX.
Any thoughts or recommendations about moving 100% into VTSAX? I'm just curious if anyone else tracks their portfolios this way.