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Balanced portfolio via signed graphs and spectral clustering in the Brazilian stock market

Author

Listed:
  • Rafael Esteves Mansano

    (Universidade Federal Fluminense)

  • Luiz Emilio Allem

    (Universidade Federal do Rio Grande do Sul)

  • Renata Raposo Del-Vecchio

    (Universidade Federal Fluminense)

  • Carlos Hoppen

    (Universidade Federal do Rio Grande do Sul)

Abstract

A portfolio associated with a balanced signed graph that contains both positive and negative edges is more predictable and risk-averse, and is therefore likely to require less turnover. In this paper, we use a method based on spectral graph theory to determine whether a portfolio is balanced or not. Moreover, we combine this with spectral clustering to propose a strategy to build a balanced portfolio with hedging assets. This is applied to stocks listed on the Brazil Stock Exchange.

Suggested Citation

  • Rafael Esteves Mansano & Luiz Emilio Allem & Renata Raposo Del-Vecchio & Carlos Hoppen, 2022. "Balanced portfolio via signed graphs and spectral clustering in the Brazilian stock market," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(4), pages 2325-2340, August.
    • Handle: RePEc:spr:qualqt:v:56:y:2022:i:4:d:10.1007_s11135-021-01227-2
    DOI: 10.1007/s11135-021-01227-2
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    References listed on IDEAS

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    1. R. Mantegna, 1999. "Hierarchical structure in financial markets," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 11(1), pages 193-197, September.
    2. László Nagy & Mihály Ormos, 2018. "Friendship of Stock Market Indices: A Cluster-Based Investigation of Stock Markets," JRFM, MDPI, vol. 11(4), pages 1-16, December.
    3. Falk Hüffner & Nadja Betzler & Rolf Niedermeier, 2010. "Separator-based data reduction for signed graph balancing," Journal of Combinatorial Optimization, Springer, vol. 20(4), pages 335-360, November.
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