An Application of Correlation Clustering to Portfolio Diversification

Hannah Cheng Juan Zhan, William Rea and Alethea Rea

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: This paper presents a novel application of software developed for constructing a phylogenetic network to the correlation matrix for 126 stocks listed on the Shanghai A Stock Market. We show that by visualizing the correlation matrix using a Neighbor-Net network and using the circular ordering produced during the construction of the network we can reduce the risk of a diversified portfolio compared with random or industry group based selection methods in times of market increase.

Keywords: Visualization; Neighbour-Nets; Correlation Matrix; Diversification (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2014-05-05
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://repec.canterbury.ac.nz/cbt/econwp/1411.pdf (application/pdf)

Related works:
Working Paper: An Application of Correlation Clustering to Portfolio Diversification (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:14/11

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