mlsanityData to 14 Oct 2026

Quantum-Assisted Optimal Rebalancing with Uncorrelated Asset Selection for Algorithmic Trading Walk-Forward QUBO Scheduling via QAOA

arXiv 2603.16904 ↗First posted 4 Mar 2026q-fin.PM cs.AIcited by 0

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Abstract (arXiv)

We present a hybrid classical-quantum framework for portfolio construction and rebalancing. Asset selection is performed using Ledoit-Wolf shrinkage covariance estimation combined with hierarchical correlation clustering to extract n = 10 decorrelated stocks from the S&P 500 universe without survivorship bias. Portfolio weights are optimised via an entropy-regularised Genetic Algorithm (GA) accelerated on GPU, alongside closed-form minimum-variance and equal-weight benchmarks. Our primary contribution is the formulation of the portfolio rebalancing schedule as a Quadratic Unconstrained Binary Optimisation (QUBO) problem. The resulting combinatorial optimisation task is solved using the Quantum Approximate Optimisation Algorithm (QAOA) within a walk-forward framework designed to eliminate lookahead bias. This approach recasts dynamic rebalancing as a structured binary scheduling problem amenable to variational quantum methods. Backtests on S&P 500 data (training: 2010-2024; out-of-sample test: 2025, n = 249 trading days) show that the GA + QAOA strategy attains a Sharpe ratio of 0.588 and total return of 10.1%, modestly outperforming the strongest classical baseline (GA with 10-day periodic rebalancing, Sharpe 0.575) while executing 8 rebalances versus 24, corresponding to a 44.5% reduction in transaction costs. Multi-restart QAOA (4096 measurement shots per run) exhibits concentrated probability mass on high-quality schedules, indicating stable convergence of the variational procedure. These findings suggest that hybrid classical-quantum architectures can reduce turnover in portfolio rebalancing while preserving competitive risk-adjusted performance, providing a structured testbed for near-term quantum optimisation in financial applications.

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References · 3

  1. 2013Ising formulations of many NP problemscited by 207
  2. 2017A Deep Reinforcement Learning Framework for the Financial Portfolio Management Problemcited by 128
  3. 2020Dynamic Portfolio Optimization with Real Datasets Using Quantum Processors and Quantum-Inspired Tensor Networkscited by 22

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