Transfer Learning for Portfolio Optimization

ArXiv ID: 2307.13546 “View on arXiv”

Authors: Unknown

Abstract

In this work, we explore the possibility of utilizing transfer learning techniques to address the financial portfolio optimization problem. We introduce a novel concept called “transfer risk”, within the optimization framework of transfer learning. A series of numerical experiments are conducted from three categories: cross-continent transfer, cross-sector transfer, and cross-frequency transfer. In particular, 1. a strong correlation between the transfer risk and the overall performance of transfer learning methods is established, underscoring the significance of transfer risk as a viable indicator of “transferability”; 2. transfer risk is shown to provide a computationally efficient way to identify appropriate source tasks in transfer learning, enhancing the efficiency and effectiveness of the transfer learning approach; 3. additionally, the numerical experiments offer valuable new insights for portfolio management across these different settings.

Keywords: Transfer Learning, Portfolio Optimization, Transfer Risk, Cross-Frequency Analysis, Asset Allocation, Equities

Complexity vs Empirical Score

• Math Complexity: 8.0/10
• Empirical Rigor: 6.5/10
• Quadrant: Holy Grail
• Why: The paper introduces a novel mathematical concept (transfer risk) and references advanced theoretical frameworks from transfer learning, including various divergences and optimal transport, indicating high mathematical complexity. While it lacks code snippets or direct backtest metrics, the detailed numerical experiments across three distinct transfer categories (cross-continent, sector, and frequency) with specific performance insights and correlation analysis demonstrate significant data-driven implementation and empirical validation.

  flowchart TD
    A["Research Goal: Utilize Transfer Learning for Portfolio Optimization"] --> B["Key Concept: Define 'Transfer Risk' Metric"]
    B --> C["Data & Methodology: Cross-Continent, Sector & Frequency Transfers"]
    C --> D["Computational Process: Evaluate Transfer Risk vs. Portfolio Performance"]
    D --> E["Key Finding 1: Strong Correlation between Transfer Risk & Performance"]
    D --> F["Key Finding 2: Transfer Risk Efficiently Identifies Best Source Tasks"]
    D --> G["Key Finding 3: New Insights for Portfolio Management"]