English

Asset Selection via Correlation Blockmodel Clustering

Portfolio Management 2021-08-16 v2 Computational Finance Statistical Finance

Abstract

We aim to cluster financial assets in order to identify a small set of stocks to approximate the level of diversification of the whole universe of stocks. We develop a data-driven approach to clustering based on a correlation blockmodel in which assets in the same cluster are highly correlated with each other and, at the same time, have the same correlations with all other assets. We devise an algorithm to detect the clusters, with theoretical analysis and practical guidance. Finally, we conduct an empirical analysis to verify the performance of the algorithm.

Keywords

Cite

@article{arxiv.2103.14506,
  title  = {Asset Selection via Correlation Blockmodel Clustering},
  author = {Wenpin Tang and Xiao Xu and Xun Yu Zhou},
  journal= {arXiv preprint arXiv:2103.14506},
  year   = {2021}
}

Comments

46 pages, 9 figures and 8 tables

R2 v1 2026-06-24T00:35:24.907Z