Clustering Indian stock market data for portfolio management

Authors:
S. R. Nanda;B. Mahanty;M. K. Tiwari
Affiliations:
Department of Industrial Engineering and Management, Indian Institute of Technology, Kharagpur, West Bengal, India;Department of Industrial Engineering and Management, Indian Institute of Technology, Kharagpur, West Bengal, India;Department of Industrial Engineering and Management, Indian Institute of Technology, Kharagpur, West Bengal, India
Venue:
Expert Systems with Applications: An International Journal
Year:
2010

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Abstract

In this paper a data mining approach for classification of stocks into clusters is presented. After classification, the stocks could be selected from these groups for building a portfolio. It meets the criterion of minimizing the risk by diversification of a portfolio. The clustering approach categorizes stocks on certain investment criteria. We have used stock returns at different times along with their valuation ratios from the stocks of Bombay Stock Exchange for the fiscal year 2007-2008. Results of our analysis show that K-means cluster analysis builds the most compact clusters as compared to SOM and Fuzzy C-means for stock classification data. We then select stocks from the clusters to build a portfolio, minimizing portfolio risk and compare the returns with that of the benchmark index, i.e. Sensex.