  This paper presents a novel framework for analyzing the optimal asset and
signal combination problem. Our approach builds upon the dynamic portfolio
selection problem introduced by Brandt and Santa-Clara (2006) and consists of
two stages. First, we reformulate their original investment problem into a
tractable one that allows us to derive a closed-form expression for the optimal
portfolio policy that is scalable to large cross-sectional financial
applications. Second, we recast the problem of selecting a portfolio of
correlated assets and signals into selecting a set of uncorrelated managed
portfolios through the lens of Canonical Correlation Analysis of Hotelling
(1936). The new investment environment of uncorrelated managed portfolios
offers unique economic insights into the joint correlation structure of our
optimal portfolio policy. We also operationalize our theoretical framework to
bridge the gap between theory and practice, showcasing the improved performance
of our proposed method over natural competing benchmarks.
