Portfolio Optimization in Both Long and Short Selling Trading Using Trend Ratios and Quantum-Inspired Evolutionary Algorithms

Stock selection is the first problem that investors encounter when investing in the stock market and is paramount. The Sharpe ratio is a common assessment strategy. However, the Sharpe ratio considers an uptrend portfolio high risk because it assesses portfolio risk using standard deviations. Hence,...

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Autores principales:	Yao-Hsin Chou, Yu-Chi Jiang, Shu-Yu Kuo
Formato:	article
Lenguaje:	EN
Publicado:	IEEE 2021
Materias:	Stock selection portfolio optimization trend ratio short selling sharpe ratio sliding window Electrical engineering. Electronics. Nuclear engineering TK1-9971
Acceso en línea:	https://doaj.org/article/553a5e8d562a4f738737c55bd0a1d365
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spelling	oai:doaj.org-article:553a5e8d562a4f738737c55bd0a1d3652021-11-20T00:01:58ZPortfolio Optimization in Both Long and Short Selling Trading Using Trend Ratios and Quantum-Inspired Evolutionary Algorithms2169-353610.1109/ACCESS.2021.3126652https://doaj.org/article/553a5e8d562a4f738737c55bd0a1d3652021-01-01T00:00:00Zhttps://ieeexplore.ieee.org/document/9606934/https://doaj.org/toc/2169-3536Stock selection is the first problem that investors encounter when investing in the stock market and is paramount. The Sharpe ratio is a common assessment strategy. However, the Sharpe ratio considers an uptrend portfolio high risk because it assesses portfolio risk using standard deviations. Hence, we propose a novel investment strategy, namely, the trend ratio, to assess portfolio risk more accurately by the portfolio trend line. Thus, the uptrend portfolio is not considered high risk and is more consistent with the psychology of investors. In addition to normal trading (long selling), short selling is another common trading method. Short selling is borrowing stocks from stock vendors to sell and then repaying the stock at a lower price to make a profit. This paper proposes investing simultaneously in normal trading and short selling by a trend ratio, which can further increase investment profits and spread risks. This paper also adds certificates of deposit as a portfolio choice to ensure that investors can still make profits. This paper utilizes the global quantum-inspired tabu search algorithm with a quantum NOT-gate (GNQTS) to effectively find the best combination of stocks. To avoid the overfitting problem, this paper employs a sliding window. Specifically, this paper combines the trend ratio, GNQTS, short selling with certificates of deposit, and sliding windows to perform the stock selection. The experimental results are promising, with our proposed method having better performance than the Sharpe ratio. Furthermore, the experimental results show that both long selling and short selling investments can increase the performance.Yao-Hsin ChouYu-Chi JiangShu-Yu KuoIEEEarticleStock selectionportfolio optimizationtrend ratioshort sellingsharpe ratiosliding windowElectrical engineering. Electronics. Nuclear engineeringTK1-9971ENIEEE Access, Vol 9, Pp 152115-152130 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	Stock selection portfolio optimization trend ratio short selling sharpe ratio sliding window Electrical engineering. Electronics. Nuclear engineering TK1-9971
spellingShingle	Stock selection portfolio optimization trend ratio short selling sharpe ratio sliding window Electrical engineering. Electronics. Nuclear engineering TK1-9971 Yao-Hsin Chou Yu-Chi Jiang Shu-Yu Kuo Portfolio Optimization in Both Long and Short Selling Trading Using Trend Ratios and Quantum-Inspired Evolutionary Algorithms
description	Stock selection is the first problem that investors encounter when investing in the stock market and is paramount. The Sharpe ratio is a common assessment strategy. However, the Sharpe ratio considers an uptrend portfolio high risk because it assesses portfolio risk using standard deviations. Hence, we propose a novel investment strategy, namely, the trend ratio, to assess portfolio risk more accurately by the portfolio trend line. Thus, the uptrend portfolio is not considered high risk and is more consistent with the psychology of investors. In addition to normal trading (long selling), short selling is another common trading method. Short selling is borrowing stocks from stock vendors to sell and then repaying the stock at a lower price to make a profit. This paper proposes investing simultaneously in normal trading and short selling by a trend ratio, which can further increase investment profits and spread risks. This paper also adds certificates of deposit as a portfolio choice to ensure that investors can still make profits. This paper utilizes the global quantum-inspired tabu search algorithm with a quantum NOT-gate (GNQTS) to effectively find the best combination of stocks. To avoid the overfitting problem, this paper employs a sliding window. Specifically, this paper combines the trend ratio, GNQTS, short selling with certificates of deposit, and sliding windows to perform the stock selection. The experimental results are promising, with our proposed method having better performance than the Sharpe ratio. Furthermore, the experimental results show that both long selling and short selling investments can increase the performance.
format	article
author	Yao-Hsin Chou Yu-Chi Jiang Shu-Yu Kuo
author_facet	Yao-Hsin Chou Yu-Chi Jiang Shu-Yu Kuo
author_sort	Yao-Hsin Chou
title	Portfolio Optimization in Both Long and Short Selling Trading Using Trend Ratios and Quantum-Inspired Evolutionary Algorithms
title_short	Portfolio Optimization in Both Long and Short Selling Trading Using Trend Ratios and Quantum-Inspired Evolutionary Algorithms
title_full	Portfolio Optimization in Both Long and Short Selling Trading Using Trend Ratios and Quantum-Inspired Evolutionary Algorithms
title_fullStr	Portfolio Optimization in Both Long and Short Selling Trading Using Trend Ratios and Quantum-Inspired Evolutionary Algorithms
title_full_unstemmed	Portfolio Optimization in Both Long and Short Selling Trading Using Trend Ratios and Quantum-Inspired Evolutionary Algorithms
title_sort	portfolio optimization in both long and short selling trading using trend ratios and quantum-inspired evolutionary algorithms
publisher	IEEE
publishDate	2021
url	https://doaj.org/article/553a5e8d562a4f738737c55bd0a1d365
work_keys_str_mv	AT yaohsinchou portfoliooptimizationinbothlongandshortsellingtradingusingtrendratiosandquantuminspiredevolutionaryalgorithms AT yuchijiang portfoliooptimizationinbothlongandshortsellingtradingusingtrendratiosandquantuminspiredevolutionaryalgorithms AT shuyukuo portfoliooptimizationinbothlongandshortsellingtradingusingtrendratiosandquantuminspiredevolutionaryalgorithms
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Portfolio Optimization in Both Long and Short Selling Trading Using Trend Ratios and Quantum-Inspired Evolutionary Algorithms

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