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Clustering stocks with similar exposures to risk factors
Deleted User
posted Aug 6, 2017
Seeking Help Machine Learning Statistics

Hi,

I am trying to group stocks based on their exposures to common risk factors. I first identify market wide risk factors and then want to cluster stocks which move similarly w.r.t risk factors using KMeans algorithm. My code is as below: 

def get_cluster(stocks, returns, riskfactors):  
    betas = smapi.OLS(returns, smapi.add_constant(riskfactors)).fit().params.T[:, 1:]  
    betas = preprocessing.scale(betas)  
    labels = KMeans(n_clusters=10).fit_predict(betas)  
    clusters = {}  
    for i, stock in enumerate(stocks):  
        label = labels[i]  
        if label not in clusters:  
            clusters[label] = []  
        clusters[label].append(stock)  
   return clusters

Would someone with clustering experience comment if what I am doing makes sense?

Best regards,
Pravin

5 responses
Jonathan Larkin
Aug 10, 2017

Hi @Pravin, I've been working on stock clustering for a couple months. I'll be making a post on it in the next couple weeks. I'll share the link here when I do.

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Deleted User
Aug 10, 2017

@Jonathan. Thanks, I look forward to your link and approach.

Best regards,
Pravin

Jonathan Larkin
Aug 29, 2017

Hi @Pravin, As promised, my clustering post is here.

Deleted User
Aug 29, 2017

Thanks Jonathan. This is awesome.

Grant Kiehne
Aug 30, 2017

Pravin -

Here's another example.

Grant

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.