Complex Valued Risk Diversification

TL;DR

This paper introduces a novel portfolio construction method using complex valued principal component analysis to enhance risk diversification, outperforming traditional risk parity approaches.

Contribution

It presents a new portfolio construction technique that integrates complex valued PCA, offering improved risk diversification over existing methods.

Findings

Outperforms conventional risk parity portfolios.

Incorporates complex valued PCA for better risk management.

Demonstrates superior diversification results.

Abstract

Risk diversification is one of the dominant concerns for portfolio managers. Various portfolio constructions have been proposed to minimize the risk of the portfolio under some constrains including expected returns. We propose a portfolio construction method that incorporates the complex valued principal component analysis into the risk diversification portfolio construction. The proposed method is verified to outperform the conventional risk parity and risk diversification portfolio constructions.