Non-Linear Data Representation with Machine Learning for Dynamic Covariance Based Financial Portfolio Optimization

This study addresses critical gaps in financial risk assessment and portfolio optimization by integrating advanced machine learning (ML) and deep learning (DL) techniques to handle the complexities of non-linearity, non-normality, and dynamic correlations among financial assets. This study comprehensively analyzes various dimensionality reduction techniques across different financial assets and time periods. By extracting non-linear features and constructing dynamic, data-driven covariance matrices, both linear and non-linear interactions among assets have been captured. This novel methodology hybridizes ML/DL and statistical approaches to enhance the robustness and resilience of portfolio optimization. The findings demonstrate significant improvements in profitability and stability under varying market conditions, offering a substantial advancement over prior studies. Therefore, this research provides a pioneering framework for more accurate and dynamic financial analysis, setting a novel standard in this research direction.

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Publication Details

Published
2025-03-17
DOI
https://doi.org/10.1109/cifer64978.2025.10975737
Primary Topic
Stock Market Forecasting Methods
Type
article
Field-Weighted Citation Impact
0.00

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article

Non-Linear Data Representation with Machine Learning for Dynamic Covariance Based Financial Portfolio Optimization

Ruppa K. Thulasiram, A. Thavaneswaran, Sulalitha Bowala, Joy Dip Das et al.
Stock Market Forecasting Methods
article

Non-Linear Data Representation with Machine Learning for Dynamic Covariance Based Financial Portfolio Optimization

Ruppa K. Thulasiram, A. Thavaneswaran, Sulalitha Bowala, Joy Dip Das, Avanthi M. Gedara
article en

Abstract

This study addresses critical gaps in financial risk assessment and portfolio optimization by integrating advanced machine learning (ML) and deep learning (DL) techniques to handle the complexities of non-linearity, non-normality, and dynamic correlations among financial assets. This study comprehensively analyzes various dimensionality reduction techniques across different financial assets and time periods. By extracting non-linear features and constructing dynamic, data-driven covariance matrices, both linear and non-linear interactions among assets have been captured. This novel methodology hybridizes ML/DL and statistical approaches to enhance the robustness and resilience of portfolio optimization. The findings demonstrate significant improvements in profitability and stability under varying market conditions, offering a substantial advancement over prior studies. Therefore, this research provides a pioneering framework for more accurate and dynamic financial analysis, setting a novel standard in this research direction.

University of Manitoba (CA)
Natural Sciences and Engineering Research Council of Canada
Decent work and economic growth
Openalex Percentile: Top 90%
Stock Market Forecasting Methods
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