The universal portfolio algorithm is a portfolio selection algorithm from the field of

machine learning Machine learning (ML) is a field of study in artificial intelligence concerned with the development and study of Computational statistics, statistical algorithms that can learn from data and generalise to unseen data, and thus perform Task ( ...

and

information theory Information theory is the mathematical study of the quantification (science), quantification, Data storage, storage, and telecommunications, communication of information. The field was established and formalized by Claude Shannon in the 1940s, ...

. The algorithm learns adaptively from historical data and maximizes the log-optimal growth rate in the long run. It was introduced by the late

Stanford University Leland Stanford Junior University, commonly referred to as Stanford University, is a Private university, private research university in Stanford, California, United States. It was founded in 1885 by railroad magnate Leland Stanford (the eighth ...

information theorist Thomas M. Cover. The algorithm rebalances the portfolio at the beginning of each trading period. At the beginning of the first trading period it starts with a naive diversification. In the following trading periods the portfolio composition depends on the historical total return of all possible constant-rebalanced portfolios.

References

{{reflist Machine learning Algorithmic trading Portfolio theories