Cluster analysis for portfolio optimization

Vincenzo Tola, Fabrizio Lillo, Mauro Gallegati and Rosario Mantegna

Papers from arXiv.org

Abstract: We consider the problem of the statistical uncertainty of the correlation matrix in the optimization of a financial portfolio. We show that the use of clustering algorithms can improve the reliability of the portfolio in terms of the ratio between predicted and realized risk. Bootstrap analysis indicates that this improvement is obtained in a wide range of the parameters N (number of assets) and T (investment horizon). The predicted and realized risk level and the relative portfolio composition of the selected portfolio for a given value of the portfolio return are also investigated for each considered filtering method.

Date: 2005-07
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://arxiv.org/pdf/physics/0507006 Latest version (application/pdf)

Related works:
Journal Article: Cluster analysis for portfolio optimization (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:physics/0507006

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().