An Application of Correlation Clustering to Portfolio Diversification

This paper presents a novel application of software 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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Year of publication:	2014-05-05
Authors:	Zhan, Hannah Cheng Juan ; Rea, William ; Rea, Alethea
Institutions:	Department of Economics and Finance, College of Business and Economics
Subject:	Visualization \| Neighbour-Nets \| Correlation Matrix \| Diversification

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Extent:	application/pdf
Series:	Working Papers in Economics.
Type of publication:	Book / Working Paper
Notes:	49 pages
Classification:	G11 - Portfolio Choice
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010907425