q-fin.PMMar 4, 2026

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

Authors: Abraham Itzhak Weinberg

Organizations: AI-WEINBERG, AI Experts, Tel Aviv, Israel

Abstract

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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