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STRAPSim: A Portfolio Similarity Metric for ETF Alignment and Portfolio Trades

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Listed:
  • Mingshu Li
  • Dhruv Desai
  • Jerinsh Jeyapaulraj
  • Philip Sommer
  • Riya Jain
  • Peter Chu
  • Dhagash Mehta

Abstract

Accurately measuring portfolio similarity is critical for a wide range of financial applications, including Exchange-traded Fund (ETF) recommendation, portfolio trading, and risk alignment. Existing similarity measures often rely on exact asset overlap or static distance metrics, which fail to capture similarities among the constituents (e.g., securities within the portfolio) as well as nuanced relationships between partially overlapping portfolios with heterogeneous weights. We introduce STRAPSim (Semantic, Two-level, Residual-Aware Portfolio Similarity), a novel method that computes portfolio similarity by matching constituents based on semantic similarity, weighting them according to their portfolio share, and aggregating results via residual-aware greedy alignment. We benchmark our approach against Jaccard, weighted Jaccard, as well as BERTScore-inspired variants across public classification, regression, and recommendation tasks, as well as on corporate bond ETF datasets. Empirical results show that our method consistently outperforms baselines in predictive accuracy and ranking alignment, achieving the highest Spearman correlation with return-based similarity. By leveraging constituent-aware matching and dynamic reweighting, portfolio similarity offers a scalable, interpretable framework for comparing structured asset baskets, demonstrating its utility in ETF benchmarking, portfolio construction, and systematic execution.

Suggested Citation

  • Mingshu Li & Dhruv Desai & Jerinsh Jeyapaulraj & Philip Sommer & Riya Jain & Peter Chu & Dhagash Mehta, 2025. "STRAPSim: A Portfolio Similarity Metric for ETF Alignment and Portfolio Trades," Papers 2509.24151, arXiv.org.
  • Handle: RePEc:arx:papers:2509.24151
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    References listed on IDEAS

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    1. Blake, Christopher R. & Morey, Matthew R., 2000. "Morningstar Ratings and Mutual Fund Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 451-483, September.
    2. repec:onb:oenbwp:y:2005:i:9:b:1 is not listed on IDEAS
    3. Ramin Baghai-Wadj & Rami El-Berry & Stefan Klocker & Markus Schwaiger, 2005. "The Consistency of Self-Declared Hedge Fund Styles — A Return-Based Analysis with Self-Organizing Maps," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 9, pages 64-76.
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