Modern Portfolio Theory - Berkshire Hathaway
This demonstration shows how ClearLedger optimizes a Berkshire-style equity portfolio using Modern Portfolio Theory.
Download Spreadsheet
You can download the exact ClearLedger export used in this demonstration:
About This Demo
This ClearLedger export shows how a Berkshire-style portfolio’s return and risk profile changes when its weights are optimized using Modern Portfolio Theory (MPT). ClearLedger does not select stocks or make predictions. It simply takes the positions you already own and determines the most efficient mix of those holdings.
ClearLedger is a quantitative optimization tool. It improves your portfolio by adjusting weights, not by choosing securities. It applies Modern Portfolio Theory to increase expected return, reduce risk, or improve both simultaneously.
Buy / Hold / Sell Signals
These signals do not mean buy or sell the stock. They are weight-adjustment signals used to move your portfolio toward the efficient frontier.
How ClearLedger Performs Berkshire Optimization
ClearLedger evaluates a Berkshire-style portfolio using a full covariance matrix derived from the selected time horizon. Each holding’s variance, covariance, and correlation contributes to the portfolio’s total risk. Rather than predicting future prices, the optimizer identifies the most efficient combination of weights based on historical relationships between the assets.
The engine constructs the efficient frontier by solving a constrained quadratic optimization problem. Weight limits, diversification rules, and risk-adjusted efficiency targets ensure the optimized portfolio remains realistic and aligned with Berkshire’s long-term, value-oriented investment philosophy. ClearLedger focuses on improving the total portfolio, not individual stocks, which is why expected return, volatility, Sharpe ratio, alpha, beta, and correlation all shift simultaneously.
Berkshire-style portfolios often contain concentrated positions in high-quality, low-turnover companies. These positions can create correlation clusters that elevate total portfolio risk. ClearLedger frequently reduces overweight positions in highly correlated holdings while increasing exposure to lower-correlation components. This rebalancing effect is what drives the improvement in risk and return metrics shown in the Technical Summary.
Total Portfolio Technical Summary
The Technicals table in the spreadsheet is the most important part of the entire export. It shows how the portfolio as a whole behaves today versus how it behaves after optimization.
Expected Return
The portfolio’s expected return increases from 13.84% to 16.57%.
Risk
Total portfolio risk decreases from 17.99% to 15.74%.
Sharpe Ratio
The Sharpe ratio improves from 0.480 to 0.714.
Alpha
Portfolio alpha increases from 0.0485 to 0.0986.
Beta
Portfolio beta decreases from 0.897 to 0.682.
Correlation
Overall correlation improves from 0.553 to 0.438.
Actual vs Expected Return
Actual vs Expected Return increases from 14.67% to 18.22%.
Benchmark Comparison
The portfolio’s benchmark gap improves from 6.05 to 9.59.
Every metric in the Technicals table improves because the optimizer focuses on the total portfolio — not individual stocks.