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rxtsperformanceanalytics

Turn dummy variables into weights


I have a table of dummy variables where the value is either 1 or NA. I know want to create a uniform weight for these dummies across rows. This is my beginning dataset, it is in xts format:

           NESN ROG NOVN ZURN ABBN UBSG LONN
1989-12-01   1   NA   1   1    NA   1    NA
1990-01-01   1   NA   1   1    1    1    NA

I would then like to split the 1's so that the sum of the row is equal to 1. The ending dataset would then look like this:

            NESN ROG NOVN ZURN ABBN UBSG LONN
1989-12-01  0.25 NA  0.25 0.25 NA   0.25  NA
1990-01-01  0.2  NA  0.2  0.2  0.2  0.2   NA

So if there are five stocks with a dummy equal to 1 in the whole row the 1 will be changed to 0.2. If there are 4 stocks it will be changed to 0.25 and so on. So far I was thinking of using replace to replace the 1's with their respective weight. However, I do not know how to do this over multiple rows with different weights. I am doing this so that I can ultimately calculate portfolio turnover.


Solution

  • You can divide the data frame by its row sums.

    # data structure
    df <- structure(list(NESN = c(1L, 1L), ROG = c(NA, NA), NOVN = c(1L, 
    1L), ZURN = c(1L, 1L), ABBN = c(NA, 1L), UBSG = c(1L, 1L), LONN = c(NA, 
    NA)), class = "data.frame", row.names = c("1989-12-01", "1990-01-01"
    ))
    
    # solution
    df/rowSums(df, na.rm=T)
    #           NESN ROG NOVN ZURN ABBN UBSG LONN
    #1989-12-01 0.25  NA 0.25 0.25   NA 0.25   NA
    #1990-01-01 0.20  NA 0.20 0.20  0.2 0.20   NA