Investment strategy due to the minimization of portfolio noise level by observations of coarse-grained entropy

Details Investment strategy due to the minimization of portfolio noise level by observations of coarse-grained entropy Investment strategy due to the minimization of portfolio noise level by observations of coarse-grained entropy

2004-12-30

arxiv.org/abs/cond-mat/0412754v1

Physica A 344, 284-288 (2004)

Physics

Condensed Matter

Statistical Mechanics

6 pages, 1 figure, 1 table, Proceedings of the conference APFA4. See http://www.chaosandnoise.org

Scientific paper

10.1016/j.physa.2004.06.133

Using a recently developed method of noise level estimation that makes use of properties of the coarse grained-entropy we have analyzed the noise level for the Dow Jones index and a few stocks from the New York Stock Exchange. We have found that the noise level ranges from 40 to 80 percent of the signal variance. The condition of a minimal noise level has been applied to construct optimal portfolios from selected shares. We show that implementation of a corresponding threshold investment strategy leads to positive returns for historical data.

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