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arXiv · 1511.07945

An Application of Correlation Clustering to Portfolio Diversification

Hannah Cheng Juan Zhan·William Rea·Alethea Rea
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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.

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Hannah Cheng Juan Zhan, William Rea, Alethea Rea. 2015-11-25. An Application of Correlation Clustering to Portfolio Diversification. https://arxiv.org/abs/1511.07945

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