An Application of Correlation Clustering to Portfolio Diversification

Hannah Cheng Juan Zhan, William Rea and Alethea Rea

Papers from arXiv.org

Abstract: This paper presents a novel application of a clustering algorithm 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.

Date: 2015-11
New Economics Papers: this item is included in nep-cmp and nep-rmg
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Citations: View citations in EconPapers (6)

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http://arxiv.org/pdf/1511.07945 Latest version (application/pdf)

Related works:
Working Paper: An Application of Correlation Clustering to Portfolio Diversification (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1511.07945

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