{"about":{"site":"https://codewithpapers.app","non_affiliation":"Code with Papers and Syntology are not affiliated with, endorsed by, or sponsored by Papers with Code, Meta, or the pwc-archive mirror.","licence":"CC BY-SA 4.0","licence_url":"https://creativecommons.org/licenses/by-sa/4.0/legalcode","attribution":"https://codewithpapers.app/attribution","modified":"archive material modified by Syntology; see the attribution page"},"url":"/paper/does-non-linear-factorization-of-financial","title":"Risk budget portfolios with convex Non-negative Matrix Factorization","arxiv_id":"2204.02757","date":"2022-04-06","proceeding":null,"authors":["Bruno Spilak","Wolfgang Karl Härdle"],"abstract":"We propose a portfolio allocation method based on risk factor budgeting using convex Nonnegative Matrix Factorization (NMF). Unlike classical factor analysis, PCA, or ICA, NMF ensures positive factor loadings to obtain interpretable long-only portfolios. As the NMF factors represent separate sources of risk, they have a quasi-diagonal correlation matrix, promoting diversified portfolio allocations. We evaluate our method in the context of volatility targeting on two long-only global portfolios of cryptocurrencies and traditional assets. Our method outperforms classical portfolio allocations regarding diversification and presents a better risk profile than hierarchical risk parity (HRP). We assess the robustness of our findings using Monte Carlo simulation.","url_abs":"https://arxiv.org/abs/2204.02757v2","url_pdf":"https://arxiv.org/pdf/2204.02757v2.pdf","source":{"archive":"pwc-archive (Hugging Face), CC BY-SA 4.0","snapshot":"2025-07-28","licence_url":"https://creativecommons.org/licenses/by-sa/4.0/legalcode","row_kind":"abstracts"},"code_links":[{"paper_slug":"does-non-linear-factorization-of-financial","repo_url":"https://github.com/quantlet/embeddingportfolio","is_official":1,"mentioned_in_paper":1,"mentioned_in_github":0,"framework":"tf","reach":null}],"tasks":[],"methods":[{"method_slug":"pca","method_name":"PCA"}],"datasets_introduced":[],"methods_introduced":[],"results":[],"syntology":{"syntology_url":null,"atlas_url":null,"mcp":null,"developers":"https://syntology.ai/developers"},"arxiv_metadata":null,"syntology_extracted_results":null}