Introduction to K Means Analysis for Stock Portfolio Essay

1. Background1 Investment decisions are nigh making choice. Investors contract to decide what asset to be invested. This is an important decision because these assets are the centre by which investors transfer todays purchasing power to the future. In effect, investor must decide on a portfolio of asset to own. A portfolio is just a combination of assets designed to serve as shop class of value. little management of these assets may destroy the portfolios value, and investor forget then not achieve their financial goals.There are numerous assets like stocks, bonds, derivatives that investors may include in the portfolio. In Hong Kong, stock portfolio is the most common investment. only when what stocks have higher(prenominal) return? What stocks are risky? What stocks in the portfolio that it has higher return? Many investors may use fundamental summary to analysis financial data for answering above questions. In the last decade, close to researches applied data minelayi ng techniques on financial market. Data mining is the process of automatic in ally discovery useful information in self-aggrandising data repositories. It can be employ to support a vast range of business intelligence applications such as customer profiling, targeted marketing, store layout.2. Motivation In America, thither are some research papers2 about applying meeting technique on America financial market. For example, using Self-organizing map(SOM) to cluster stocks and financial ratio for fundamental analysis, using SOM to find the valuable stock. These all researches lack to find the characteristic of the stocks.However, most these researches use SOM clustering technique, and focalize on America financial market. It seems that few researches do similar affaire in Hong Kong stock market. Moreover, these researches only urgency to find the characteristic of stocks. In real case, investors lead not only purchase one stocks. They will construct a stock portfolio to elimi nate the risk.So I want to apply similar approach on Hong Kong stock market and transfigure the clustering technique to K-means, not SOM. And I not only want to cluster the stocks, but too the portfolio. I want to cluster many combinations of the portfolio as I can to find the characteristic of disparate combinations of the portfolio.I am interested in investment, and I study information applied science in university. I want to combine two aspects for my final division get wind. And I believe this project is very useful for my future career.I have read relative books, papers for getting the basic creative thinker and concept of portfolio and data mining. In this project, I use many skillful skills, methods and knowledge learnt from City University of Hong Kong in the past three years. Java scheduling is used to do the data preprocessing like normalization, financial calculation. It is also used to generate the combination of the portfolio and the guise of K-means. MYSQL dat abase is used to store the data of stocks and portfolio. The simulation result is also stored in the database.3. Objectives In this final year project, there are several objects 1. To examine the characteristic of stocks in Hong Kong stock market. 2. To investigate the characteristic of different stock portfolios in Hong Kong stock market. 3. To determine that different combination of stocks how to affect the performance of the portfolio. 4. To investigate the strength and weakness of applying K-means on financial data.4. Report outlineThere are total 6 chapters in this report. Following this Chapter 1 Introduction, Chapter 2 Literature Review refers to tie in theories applied on the simulation, result analysis and discussion. Chapter 3 Simulation presents the methodology, project flow chat of the simulation. Chapter 4 Result Analysis will do the data processing of the result from the simulation. Chapter 5 Further Development will discuss the further development and improvement of the project. At the end, Chapter 6 cobblers last will do the conclusion of the whole project.5. Chapter Summary This chapter mentions the background of the project. It also presents the motivation of this project and give the objective, report outline to the readers for better appreciation of the project.