Network analysis builds a network or tree from time series of prices, volumes and other indicators to show how companies, countries or currencies are related. It is also used to form clusters for portfolio optimisation.
Over the last decade, network analysis has become popular — especially for the stock market.
It uses time series of prices, volumes and other financial indicators to build a network or a tree, offering a different perspective on the relationships between companies, countries or currencies. Network analysis is also used as an alternative way to build clusters for portfolio optimisation.
Related research
Comparing minimum spanning trees of the Italian stock market using returns and volumes — Paolo Coletti, Physica A: Statistical Mechanics and its Applications, 463, 246–261, 2016.
Common questions
What is network analysis of stock markets?
A technique that uses time series of prices, volumes and other financial indicators to build a network or a tree, showing the relationships between companies, countries or currencies from a different perspective.
What is a minimum spanning tree in finance?
A tree that connects every stock in a market through its strongest relationships while keeping the overall structure as simple as possible. Paolo Coletti compared such trees for the Italian stock market built from returns and from volumes (Physica A, 2016).
How does network analysis help portfolio optimisation?
It offers an alternative way to group related assets into clusters, which can then be used to build and diversify portfolios.
