Big Data in Portfolio Allocation
28 Pages Posted: 21 Mar 2018 Last revised: 17 Apr 2018
Date Written: March 17, 2018
In the classic portfolio management theory, the weights of the optimized portfolios are directly proportional to the inverse of the asset correlation matrix. We show that, from the Big Data perspective, the inverse of the correlation matrix adds more value to optimal portfolio selection than the correlation matrix itself. We further show the empirical results of portfolio reallocation under different common portfolio composition scenarios, and outperform traditional portfolio allocation techniques out-of-sample, delivering nearly 400% improvement over the equally-weighted allocation over a 20-year investment period.
Keywords: Portfolio optimization, big data, investment management, correlation
JEL Classification: C02, C60
Suggested Citation: Suggested Citation