Portfolio Diversification Using Shape-Based Clustering

Lim, Tristan; Ong, Chin Sin

doi:10.3905/jfds.2020.1.054

Cited by 7 publications

(5 citation statements)

References 35 publications

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“…In this paper we are particularly interested in clustering methods for financial trades and transactions. Recent work in this area includes agglomerative hierarchical clustering for asset allocation (Raffinot, 2017) and aggregating stocks using dynamic time-series warping as a distance measure (Lim et al, 2020), selforganizing maps and k-means clustering methods in combination with classifier techniques to predict financial distress (Tsai, 2014), fuzzy Cmedoids clustering method for classifying financial time series (D'Urso et al, 2013), and clustering algorithms for financial risk analysis using multiple criteria decision-making methods (Kou et al, 2014). Absent from this body of work is the use of this broad class of techniques to analyze trading behaviours, the focus of this paper.…”

Section: Statisticmentioning

confidence: 99%

The Impact of Saving on Financial Resilience

Grace,

Metzler,

Miao

et al. 2024

FSR

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In this paper, we examine the issue of saving in the context of financial resilience. We examine unique dataset(s) of investor transactions to determine the relationship between investor behaviours, household savings, and investment outcomes. We examine these real-world observed behaviours through advanced data analytics in the form of machine learning to explore previously unknown patterns and seek a determination of any causal relationships. We examine trading over a 3-year period ending August 2022, providing us with the opportunity to observe behaviour during rising markets, declining markets and the turbulent phases during transitions. Our datasets included investors who work with financial advisors and those who prefer “do it yourself”. Trading behaviours over this period, demonstrated an active savings strategy to be the most effective strategy for building wealth. On average, an active savings strategy was 5X more effective at building wealth and resilience than relying on investment returns or complex trading strategies. We conclude that; Saving is a ‘force of nature’. The math isn’t new, but it works and we observed it working in the ‘real world”. Saving is simpler, more reliable, and more powerful than investment returns for building financial resilience. Frequent and disciplined saving is more effective than periodic or just-in-time saving. Saving is a universal strategy - the observed results were the same regardless of age groups, genders, risk tolerances and income levels. Keeping it simple is a legitimate strategy for building wealth. Saving and saving often - is not only easy to prescribe but effective.

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Section: Statisticmentioning

confidence: 99%

The Impact of Saving on Financial Resilience

Grace,

Metzler,

Miao

et al. 2024

FSR

View full text Add to dashboard Cite

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“…The selection of clustering algorithm is determined by the characteristics of analysed data and the concrete purpose and application. In financial time series classification hierarchical clustering using Dynamic Time Warping (DTW) distance may provide improvement regarding portfolio diversification (Lim & Ong, 2021). Therefore, DTW distance measure, which allows comparison of one-to-many points and belong to elastic measures, has been used increasingly as a similarity measurement due to its superiority in sequence-alignment flexibility (Wang et al, 2013).…”

Section: Stock Selection Strategy and Portfolio Performance Measuresmentioning

confidence: 99%

Performance of Social Pillar-Based Portfolio in Developing Capital Market

Stanković

Denčić-Mihajlov

Stanković

et al. 2022

Manag: J. Sustain. Bus. Manag. Solut. Emerg. Econ.

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Research Question: This study examined the preconditions and efficiency of socially responsible investing (SRI) in the developing capital market, specifically the Belgrade Stock Exchange (BSE). Motivation: Considering the increasing trend of SRI (GSIA, 2020) and importance of information on corporate social responsibility (CSR) to investors (Miralles‐Quiros, Miralles‐Quiros, & Arraiano, 2017), especially on social issues (Giese, Nagy, & Lee, 2021), we explored the influence of applying the social criteria in asset selection on investment portfolio performance at the BSE. This study builds on the existing literature that is mostly focused on developed capital markets of Europe, the United States and Canada (Von Wallis & Klein, 2015) by analysing the issue of SRI in the developing market. The provided setup for socially driven portfolio structuring based on market trends and social performance disclosure proved to be efficient in the long-term. Idea: The core idea of this paper was to analyse the terms for SRI and empirically evaluate the performance of social pillar-based portfolio on the BSE in order to provide evidence to support the trend of SRI in developing markets. The structure of the portfolios was set using the best-in-class strategy, while the classes were determined on the basis of the stocks’ return trends. Data: The analysis was conducted using trading data and information from financial and non-financial reports of the companies listed on the BSE. Tools: Cluster analysis was used for classification of stocks, while performances of portfolios were evaluated implementing return, volatility and risk-adjusted measures. Findings: The social pillar-based portfolio outperformed the conventional one and benchmarking indices in the observed five-year period. However, mixed results were obtained in the short-term indicating that specific effects of CSR practice on financial performance of the companies in observed developing market could still be obscured. Contribution: This paper expands the existing research related to SRI in the developing markets and offers practical recommendations for potential socially conscious investors.

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“…Here, investors face the problem of choosing investment instruments in different asset classes and securities. Portfolio diversification strategies often include only methods of analysis of already selected investment instruments (Liesiö et al, 2021;Lim & Ong, 2021), examine the impact of including different asset classes financial instruments on portfolio efficiency (Akhtaruzzaman et al, 2020;Alkhazali & Zoubi, 2020), and compare geographical and global market portfolios (Sandeepani & Herath, 2020;Trabelsi et al, 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

Comparison of multicriteria decision-making methods in portfolio formation

Martinkutė-Kaulienė¹,

Skobaitė²,

Stasytytė³

et al. 2021

fmv

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Investors apply various methods to select stocks and construct an investment portfolio. In the majority of methods, the principle of diversification is relevant. Also, sometimes investors‘ behaviour generate biases related to portfolio formation. Multicriteria decision-making methods can overcome such shortcomings of investors' decision-making; thus, they are widely used for portfolio selection. In the performed research, the portfolio is constructed from the stocks of the Spanish stock market. Stocks are selected based on financial indicators. SAW and TOPSIS multicriteria methods are used to range the suitable stocks. Portfolio weights are proportionate to the obtained multicriteria rank. Characteristics of the final selected stocks are presented graphically. Expected portfolio return and risk are also described when comparing two portfolios. The results of the research prove that multicriteria decision-making methods are suitable for portfolio formation. However, such portfolios should be kept for a long time in order to receive a return.

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Portfolio Diversification Using Shape-Based Clustering

Cited by 7 publications

References 35 publications

The Impact of Saving on Financial Resilience

The Impact of Saving on Financial Resilience

Performance of Social Pillar-Based Portfolio in Developing Capital Market

Comparison of multicriteria decision-making methods in portfolio formation

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