Performance analysis of the integration between Portfolio Optimization and Technical Analysis strategies in the Brazilian stock market

This article proposes a fusion between Technical Analysis indicators and Multiobjective Portfolio Optimization. It considers four indicators and the optimization performed over two risk measures and the expected return, subject to cardinality constraint, self-financing, and investment limits. The fusion occurs using two scenarios. The first one generates an optimal investment portfolio at the beginning of each month and uses Technical Analysis indicators to carry out the transactions. The second one performs the optimization monthly, considering just the assets filtered by the indicators. Numerical simulations consider an insightful comparison concerning the performance of proposed approaches with indicators and optimization in isolation and with standard benchmarks, covering six years of data from the Brazilian Stock Exchange, as a robust analysis. The portfolios are evaluated under metrics return, maximum drawdown and drawup, Return Over Maximum Drawdown index, and the Draw Ratio index. The results show that these fusions can improve the portfolio performance, providing optimal strategies to the investor giving a higher return for a certain level of risk, even considering realistic constraints.

Automated summary

This article proposes a fusion between Technical Analysis indicators and Multiobjective Portfolio Optimization, with two scenarios for optimization and numerical simulations based on data from the Brazilian Stock Exchange. Results show that this fusion can improve portfolio performance, providing optimal strategies to investors for higher returns at certain risk levels.