Forming of the Investment Portfolio Using the Self-organizing Maps (SOM)
Volume 12, Issue 4 (2001), pp. 573–584
Pub. online: 1 January 2001
Type: Research Article
Received
1 October 2001
1 October 2001
Published
1 January 2001
1 January 2001
Abstract
The problem of comparison of different companies is facing, when looking for possible candidates for the investment portfolio. Screening of the companies, using “well-known” trading strategy parameters, is one of the ways to solve this problem. Actually, using this procedure much more companies appear on the list, than the trader is willing to buy. To define the best companies or group of the best companies self-organizing (Kohonen's) map (SOM) could be used. Using fundamental financial parameters as inputs, the output of SOM forms the different groups of companies located into a number of disjoint clusters.
Then, by the special averaging technique, the 3D map of quality of investment could be formed. Investing portfolios also could be formed by simple technical analysis approach.
Non-linear ranging technique was applied as an alternative to self-organizing map procedure in this paper. The certain meanings of weights were given to the factors, which characterize the companies. Then, by estimation of all weights, companies were assigned to their place in the general listing.
Four different portfolios were formed as a result of these researches. The performance of these portfolios showed which of the researched techniques gave better result. The real data from USA stock markets was used for the realization of the whole idea.