Large-scale portfolio optimization using Pauli Correlation Encoding
Abstract
Portfolio optimization is a cornerstone of financial decision-making, traditionally relying on classical algorithms to balance risk and return. Recent advances in quantum computing offer a promising alternative, leveraging quantum algorithms to efficiently explore complex solution spaces and potentially outperform classical methods in high-dimensional settings. However, conventional quantum approaches typically assume a one-to-one correspondence between qubits and variables (e.g. financial assets), which severely limits the applicability of gate-based quantum systems due to current hardware constraints. As a result, only quantum annealing-like methods have been used in realistic scenarios. In this work, we show how a gate-based variational quantum algorithm can be applied to a real-world portfolio optimization problem by assigning multiple variables per qubit. Specifically, we address a problem involving over 250 variables, where the market graph representing a real stock market is iteratively partitioned into sub-portfolios of highly correlated assets. This approach enables improved scalability compared to traditional variational methods and opens new possibilities for quantum-enhanced financial applications.
Cite
@article{arxiv.2511.21305,
title = {Large-scale portfolio optimization using Pauli Correlation Encoding},
author = {Vicente P. Soloviev and Michal Krompiec},
journal= {arXiv preprint arXiv:2511.21305},
year = {2025}
}