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

machine learning Machine learning (ML) is a field of inquiry devoted to understanding and building methods that 'learn', that is, methods that leverage data to improve performance on some set of tasks. It is seen as a part of artificial intelligence. Machine ...

and

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. 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 Stanford University, officially Leland Stanford Junior University, is a private research university in Stanford, California. The campus occupies , among the largest in the United States, and enrolls over 17,000 students. Stanford is consider ...

information theorist

Thomas M. Cover Thomas M. Cover �koʊvər(August 7, 1938 – March 26, 2012) was an American information theorist and professor jointly in the Departments of Electrical Engineering and Statistics at Stanford University. He devoted almost his entire career to dev ...

. 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