Portfolio Optimization and the Random Magnet Problem

Details Portfolio Optimization and the Random Magnet Problem Portfolio Optimization and the Random Magnet Problem

2001-11-28

arxiv.org/abs/cond-mat/0111537v1

Physics

Condensed Matter

Statistical Mechanics

12 pages, 4 figures, revtex

Scientific paper

10.1209/epl/i2002-00135-4

Diversification of an investment into independently fluctuating assets reduces its risk. In reality, movement of assets are are mutually correlated and therefore knowledge of cross--correlations among asset price movements are of great importance. Our results support the possibility that the problem of finding an investment in stocks which exposes invested funds to a minimum level of risk is analogous to the problem of finding the magnetization of a random magnet. The interactions for this ``random magnet problem'' are given by the cross-correlation matrix {\bf \sf C} of stock returns. We find that random matrix theory allows us to make an estimate for {\bf \sf C} which outperforms the standard estimate in terms of constructing an investment which carries a minimum level of risk.

Affiliated with

Also associated with

No associations

Rating

Portfolio Optimization and the Random Magnet Problem does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Portfolio Optimization and the Random Magnet Problem, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Portfolio Optimization and the Random Magnet Problem will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-117802