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Hard · portfolio_optimization · Quant Researcher interview question · maximum_diversification, diversification_ratio, portfolio_optimization, covariance, long_only
The Maximum Diversification Portfolio, proposed by Choueifaty & Coignard (2008), maximizes the Diversification Ratio DR(w) = (w^T σ) / √(w^T Σ w). This portfolio construction method is driven solely by the covariance structure of assets, requiring no return forecasts. Institutional allocators use it as a risk-parity alternative that explicitly targets diversification across risk sources. Task Implement the function maximum_diversification_portfolio(returns: list) -> list to compute the weights