Dramatically Improved Portfolio Optimization Results with Noise-Filtered Covariance

Demonstration that in-sample Markowitz type mean-variance optimization, carried out with noise filtered covariance matrices, results in asset allocation that leads to 2-3 times increase of the Sharpe ratio compared to the same optimization carried out without noise filtering.Demonstration of 2-3 times increase of the Sharpe ratio due to asset allocation obtained via optimization, carried out with noise filtered covariance matrices, for two possible optimization scenarios – maximization of portfolio return at a fixed volatility and minimization of portfolio volatility at a fixed return