Graph modeling for hedging in equity portfolio: Arecent study in Indian context

This paper is a combination of theoretical idea generation and empirical findings with recent stock market data over last five years. It introduces a new outlook in portfolio management with the help of graph theory, a widely used discrete mathematical tool in engineering branches. For a given portfolio, this paper describes a methodology to compute a balance index and points out its utility. Empirical study of this paper finds that if stocks within a portfolio are replaced by other stocks of the same industry, then such balance index moves within a bounded interval. Hence keeping the sector composition fixed indirectly imply to maintain the degree of portfolio balance between upper and lower bounds. With such a new approach of risk analysis, investors will also be able to take their portfolio restructuring decision subject to the availability of investment capital. This new outlook opens number of challenging research area in both portfolio management and graph theory.