Lobo's Investment

Let X be the daily fund price of a specific fund and E the expected return. The expected daily return can be calculated by E/N, where N is the no. of trading days in a year. For simplicity, I use Alpha, the 1st regression coefficient for E.

A centered random variable can be constructed by

dX - Alpha/N

From geometric point of view, the correlation coefficient can calculated from the dot product of the two vectors drawn from the two random variables. If a portfolio with a number of funds with net zero vector sum is found, that would be something that can produce a very steady growth.