Network Diversification for a Robust Portfolio Allocation

Network Diversification for a Robust Portfolio Allocation

AuthorsMarkus Jaeger; Dimitri Marinelli

Paper linkhttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=4068889

Network-based portfolio allocation leverages asset correlations represented as graphs, including minimum spanning trees, planar maximally filtered graphs, and multiplex networks, to enhance diversification, reduce risk, and optimize multi-asset portfolio performance.

By capturing complex interconnections and structural importance of assets, network-based approaches improve portfolio construction beyond traditional methods. They help identify under- and over-connected assets, mitigating risk and enhancing returns during market stress.