A Comparative Analysis of Portfolio Optimization Using Mean-Variance, Hierarchical Risk Parity, and Reinforcement Learning Approaches on the Indian Stock Market

Jaydip Sen, Aditya Jaiswal, Anshuman Pathak, Atish Kumar Majee, Kushagra Kumar, Manas Kumar Sarkar and Soubhik Maji

Papers from arXiv.org

Abstract: This paper presents a comparative analysis of the performances of three portfolio optimization approaches. Three approaches of portfolio optimization that are considered in this work are the mean-variance portfolio (MVP), hierarchical risk parity (HRP) portfolio, and reinforcement learning-based portfolio. The portfolios are trained and tested over several stock data and their performances are compared on their annual returns, annual risks, and Sharpe ratios. In the reinforcement learning-based portfolio design approach, the deep Q learning technique has been utilized. Due to the large number of possible states, the construction of the Q-table is done using a deep neural network. The historical prices of the 50 premier stocks from the Indian stock market, known as the NIFTY50 stocks, and several stocks from 10 important sectors of the Indian stock market are used to create the environment for training the agent.

Date: 2023-05
New Economics Papers: this item is included in nep-big, nep-cmp, nep-fmk, nep-mfd and nep-rmg
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