IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2511.10478.html
   My bibliography  Save this paper

Noise-proofing Universal Portfolio Shrinkage

Author

Listed:
  • Paul Ruelloux
  • Christian Bongiorno
  • Damien Challet

Abstract

We enhance the Universal Portfolio Shrinkage Approximator (UPSA) of Kelly et al. (2023) by making it more robust with respect to estimation noise and covariate shift. UPSA optimizes the realized Sharpe ratio using a relatively small calibration window, leveraging ridge penalties and cross-validation to yield better portfolios. Yet, it still suffers from the staggering amount of noise in financial data. We propose two methods to make UPSA more robust and improve its efficiency: time-averaging of the optimal penalty weights and using the Average Oracle correlation eigenvalues to make covariance matrices less noisy and more robust to covariate shift. Combining these two long-term averages outperforms UPSA by a large margin in most specifications.

Suggested Citation

  • Paul Ruelloux & Christian Bongiorno & Damien Challet, 2025. "Noise-proofing Universal Portfolio Shrinkage," Papers 2511.10478, arXiv.org.
    • Handle: RePEc:arx:papers:2511.10478
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2511.10478
    File Function: Latest version
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2511.10478. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.