TY - JOUR
T1 - Dynamic asset trees and portfolio analysis
AU - Onnela, Jukka-Pekka
AU - Chakraborti, Anirban
AU - Kaski, Kimmo
AU - Kertesz, Janos
PY - 2002
Y1 - 2002
N2 - The minimum spanning tree, based on the concept of ultrametricity, is constructed from the correlation matrix of stock returns and provides a meaningful economic taxonomy of the stock market. In order to study the dynamics of this asset tree we characterise it by its normalised length and by the mean occupation layer, as measured from an appropriately chosen centre called the 'central node'. We show how the tree evolves over time, and how it shrinks strongly, in particular, during a stock market crisis. We then demonstrate that the assets of the optimal Markowitz portfolio lie practically at all times on the outskirts of the tree. We also show that the normalised tree length and the investment diversification potential are very strongly correlated.
AB - The minimum spanning tree, based on the concept of ultrametricity, is constructed from the correlation matrix of stock returns and provides a meaningful economic taxonomy of the stock market. In order to study the dynamics of this asset tree we characterise it by its normalised length and by the mean occupation layer, as measured from an appropriately chosen centre called the 'central node'. We show how the tree evolves over time, and how it shrinks strongly, in particular, during a stock market crisis. We then demonstrate that the assets of the optimal Markowitz portfolio lie practically at all times on the outskirts of the tree. We also show that the normalised tree length and the investment diversification potential are very strongly correlated.
U2 - 10.1140/epjb/e2002-00380-9
DO - 10.1140/epjb/e2002-00380-9
M3 - Article
VL - 30
SP - 285
EP - 288
JO - European Physical Journal B. Condensed Matter and Complex Systems
JF - European Physical Journal B. Condensed Matter and Complex Systems
SN - 1434-6028
IS - 3
ER -