Portfolio Optimization: A Return-on-Equity Network Analysis

Xiangzhen Yan, Hanchao Yang, Zhongyuan Yu, Shuguang Zhang, Xianrong Zheng

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

This article proposes return-on-equity (ROE) networks for portfolio optimization, which integrate the DuPont analysis and graph theory. Portfolio diversification is interpreted as follows: An intercluster relationship of the network structure diversifies business models, whereas an innercluster relationship variegates different industries. The proposed approach is applied to the Chinese stock market. It shows that, in terms of the annualized return, the ROE network optimized portfolio reached 13.20% compared with 6.02% of the Shanghai Stock Exchange (SSE) Composite Index. It also shows that portfolios with 100-200 stocks, which are composed of the top 10%-20% ROE stocks, reached the highest return-risk efficiency.

Original languageEnglish
Pages (from-to)1644-1653
Number of pages10
JournalIEEE Transactions on Computational Social Systems
Volume11
Issue number2
DOIs
StatePublished - 1 Apr 2024

Keywords

  • Complex network
  • DuPont analysis
  • diversification
  • entropy
  • portfolio optimization

Fingerprint

Dive into the research topics of 'Portfolio Optimization: A Return-on-Equity Network Analysis'. Together they form a unique fingerprint.

Cite this