# Diffolio: A Diffusion Model for Multivariate Probabilistic Financial Time-Series Forecasting and Portfolio Construction

arXiv: https://arxiv.org/abs/2511.07014 · HTML: https://mlsanity.com/paper/2511.07014/

## Key facts

- Cited by 1 papers in the map (data through 14 Oct 2026).
- Placed in Flow matching, time series and science, one of 14 directions in Diffusion models.
- Builds on 19 of its 52 references that are in the map.
- First posted on arXiv 10 Nov 2025.

## Placed in

- Diffusion models / [Flow matching, time series and science](https://mlsanity.com/diffusion/flow-matching-time-series-and-science/)

## Builds on (most cited first, 19 of 19)

- [Attention Is All You Need](https://mlsanity.com/paper/1706.03762/) (2017)
- [Denoising Diffusion Probabilistic Models](https://mlsanity.com/paper/2006.11239/) (2020)
- [Denoising Diffusion Implicit Models](https://mlsanity.com/paper/2010.02502/) (2020)
- [Deep Unsupervised Learning using Nonequilibrium Thermodynamics](https://mlsanity.com/paper/1503.03585/) (2015)
- [Flow Matching for Generative Modeling](https://mlsanity.com/paper/2210.02747/) (2022)
- [Layer Normalization](https://mlsanity.com/paper/1607.06450/) (2016)
- [WaveNet: A Generative Model for Raw Audio](https://mlsanity.com/paper/1609.03499/) (2016)
- [DiffWave: A Versatile Diffusion Model for Audio Synthesis](https://mlsanity.com/paper/2009.09761/) (2020)
- [CSDI: Conditional Score-based Diffusion Models for Probabilistic Time Series Imputation](https://mlsanity.com/paper/2107.03502/) (2021)
- [Autoregressive Denoising Diffusion Models for Multivariate Probabilistic Time Series Forecasting](https://mlsanity.com/paper/2101.12072/) (2021)
- [Perception Encoder: The best visual embeddings are not at the output of the network](https://mlsanity.com/paper/2504.13181/) (2025)
- [Diffusion-based Time Series Imputation and Forecasting with Structured State Space Models](https://mlsanity.com/paper/2208.09399/) (2022)
- [Diffusion-TS: Interpretable Diffusion for General Time Series Generation](https://mlsanity.com/paper/2403.01742/) (2024)
- [Quant GANs: Deep Generation of Financial Time Series](https://mlsanity.com/paper/1907.06673/) (2019)
- [Predict, Refine, Synthesize: Self-Guiding Diffusion Models for Probabilistic Time Series Forecasting](https://mlsanity.com/paper/2307.11494/) (2023)
- [Deep Learning in Asset Pricing](https://mlsanity.com/paper/1904.00745/) (2019)
- [MG-TSD: Multi-Granularity Time Series Diffusion Models with Guided Learning Process](https://mlsanity.com/paper/2403.05751/) (2024)
- [Conditional Sig-Wasserstein GANs for Time Series Generation](https://mlsanity.com/paper/2006.05421/) (2020)
- [A Financial Time Series Denoiser Based on Diffusion Model](https://mlsanity.com/paper/2409.02138/) (2024)

## Built on by (most cited first, 1 of 1)

- [Beyond Linear Dynamics: Neural Bilinear Dynamical Models for Time Series Forecasting](https://mlsanity.com/paper/2608.04471/) (2026)

## Abstract (arXiv)

Probabilistic forecasting is crucial in multivariate financial time-series for constructing efficient portfolios that account for complex cross-sectional dependencies. In this paper, we propose Diffolio, a diffusion model designed for multivariate financial time-series forecasting and portfolio construction. Diffolio employs a denoising network with a hierarchical attention architecture, comprising both asset-level and market-level layers. Furthermore, to better reflect cross-sectional correlations, we introduce a correlation-guided regularizer informed by a stable estimate of the target correlation matrix. This structure effectively extracts salient features not only from historical returns but also from asset-specific and systematic covariates, significantly enhancing the performance of forecasts and portfolios. Experimental results on the daily excess returns of 12 industry portfolios show that Diffolio outperforms various probabilistic forecasting baselines in multivariate forecasting accuracy and portfolio performance. Moreover, in portfolio experiments, portfolios constructed from Diffolio's forecasts show consistently robust performance, thereby outperforming those from benchmarks by achieving higher Sharpe ratios for the mean-variance tangency portfolio and higher certainty equivalents for the growth-optimal portfolio. These results demonstrate the superiority of our proposed Diffolio in terms of not only statistical accuracy but also economic significance.