USING GREY RELATIONAL ANALYSIS WITH FUZZY LOGIC IN PORTFOLIO SELECTION

Abstract

This research combines the Grey Systems Theory with the Fuzzy Logic in the process of selecting stocks intothe portfolio. Since many financial data often include uncertainties with incomplete data, the mentionedapproaches are quite useful for modelling such data. Based on the weekly data on 20 stocks on the ZagrebStock Exchange for the period 2 January - 30 April 2019, the rankings from the Grey Relational Analysis areused to form membership functions within the Fuzzy Logic approach of making the final decision on investing.The dynamic analysis provides insights into the simulated portfolio characteristics which are compared tobenchmark ones. The results of this study indicate that there exists potential in using the mentioned twoapproaches combined to achieve investment goals.