Balanced portfolio via signed graphs and spectral clustering in the Brazilian stock market

Rafael Esteves Mansano (), Luiz Emilio Allem (), Renata Raposo Del-Vecchio () and Carlos Hoppen ()
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Rafael Esteves Mansano: Universidade Federal Fluminense
Luiz Emilio Allem: Universidade Federal do Rio Grande do Sul
Renata Raposo Del-Vecchio: Universidade Federal Fluminense
Carlos Hoppen: Universidade Federal do Rio Grande do Sul

Quality & Quantity: International Journal of Methodology, 2022, vol. 56, issue 4, No 23, 2325-2340

Abstract: Abstract A portfolio associated with a balanced signed graph that contains both positive and negative edges is more predictable and risk-averse, and is therefore likely to require less turnover. In this paper, we use a method based on spectral graph theory to determine whether a portfolio is balanced or not. Moreover, we combine this with spectral clustering to propose a strategy to build a balanced portfolio with hedging assets. This is applied to stocks listed on the Brazil Stock Exchange.

Keywords: Signed graph; Balanced graph; Spectral clustering; Stock market (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11135-021-01227-2

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