Unlocking Financial Market Secrets: New Method Reveals Portfolio Optimization Opportunities
The article explores how to estimate the number of assets in financial markets using a method called intrinsic dimension estimation. By analyzing the relationships between asset returns, researchers can determine the optimal balance between risk and diversification in a portfolio. They use second-order data, like distances between asset returns, to measure this intrinsic dimension. The study shows that this technique is effective in understanding the complexity of financial markets and can be used in portfolio optimization and risk management.