Applying the Clustering and UTADIS Models to form an Investment Portfolio

Document Type : Research Paper


1 Prof. of Industrial Management, Faculty of Management, University of Tehran, Tehran, Iran

2 Assistant Prof., Faculty of Management, University of Tehran, Tehran, Iran

3 Ph.D. Student of Industrial Management, Faculty of Management and Accounting, Allameh Tabataba’i University, Tehran, Iran


Objective: The aim of this study is to propose a synthetic approach including  Clustering and UTADIS models to form a profitable investment portfolio.
Methods: In this research, securities are clustered using K-means method and the ideal number of clusters is determined through certain validation indexes. The results obtained from the Clustering method were used as the input data for the UTADIS model and the securities were classified by UTADIS. After solving the primary model, in order to achieve better resulst, a post-optimality analysis was performed and the classification validity test and the classification error tests were carried out.
Results: After reviewing previous studies in this field and carrying out a survey of professionals from the financial industry, eight key attributes including capital return, beta coefficient, net profit margin, BV/MV, ROA, ROE, P/E and EPS were identified. The investment portfolio consists of Iran tele companies, Khark Petrochemical, Shazand Petrochemical, Fanavaran Petrochemical, Information services, Iran refract, Khouzestan steel, and Iran zinc mines.
Conclusion: The results of study showed that the proposed framework has created a profitable portfolio and capital return is the most important attribute in stock portfolio selection.


Main Subjects

Abzari, M., Sameti, M., & Delbari, M. (2003). Applying “Analysis of Hierarchical Process” Model (AHP) in Considering Appropriate Criteria for Selecting Stocks in Tehran Stock Exchange. The Journal of Planning and Budgeting, 7(5), 3-27. (in Persian)
Dehghan, A., Emamat, M.S. M. M. (2015). Stock portfolio selection using multi-choice goal programming, National congress of the key issues in management and accounting.
(in Persian)
Dimitras, A. (2002). Evaluation of Greek Construction Companies’ Securities Using UTADIS Method. European Research Studies, 5(1-2), 95-107.
Dimitras, A. I., & Sagka, I. V. (2012). Forming a portfolio using multi-criteria method UTADIS. Τµήµα∆ ηµόσιας∆ ιοίκησης, (1), 116-132.
Doumpos, M., & Zopounidis, C. (2002a). Multicriteria decision aid classification methods (Vol. 73). Springer Science & Business Media.
Doumpos, M., & Zopounidis, C. (2002b). Multi–Criteria Classification Methods in Financial and Banking Decisions. International Transactions in Operational Research, 9(5), 567-581.
Doumpos, M., Zopounidis, C., & Fragiadakis, P. (2016). Assessing the financial performance of European banks under stress testing scenarios: a multicriteria approach. Operational Research, 16(2), 197-209.
Eslami, B. G. R., & Saranj, A. (2008). Portfolio Selection Using Return Mean, Return Standard Deviation and Liquidity in Tehran Stock Exchange, Journal of the Accounting and Auditing Review, 15(53), 3-16. (in Persian)
Esmaelian, M., Shahmoradi, H., & Vali, M. (2016). A novel classification method: A hybrid approach based on extension of the UTADIS with polynomial and PSO-GA algorithm. Applied Soft Computing, 49, 56-70.
Fallahpour, S., Safari, H. & Omrani, N. (2014). Portfolio selection using fuzzy logarithmic preference programming and PROMETHEE, Journal of Financial Management Strategy, 2(2), 103-120. (in Persian)
Farid, D. & Pourhamidi, M. (2012). Classifying Stocks of Listed Companies on Tehran Stock Exchange Using Fuzzy Cluster Analysis. Financial Accounting Researches, 4(3), 105-128. (in Persian)
Floudas, C. A., & Pardalos, P. M. (Eds.). (2008). Encyclopedia of optimization (Vol. 1). Springer Science & Business Media.
Ghasemi, A. R. & Ahmadi, S. H. (2016). Stock Portfolio Selection through a Hybrid Approach of Martel & Zaras, MADM and Clustering Methods: The Case of Pharmaceutical Industries, Production and Operations Management, 2(13), 173-198. (in Persian)
Horngren, C. T., Harrison, W. T. & Rabinson, M. (2006). Accounting (I. Noravesh, & G. R. Karami, Trans.), Ketabe no, Tehran. (in Persian)
Izadi, H. (2004). Modern Portfolio Theory (1ed). Industrial research and training center of Iran.
(in Persian)
Jones, C. P. (2003). Investments: Analysis and management (R. Tehrani, & A. Noorbakhsh, Trans.). Negah Danesh, Tehran. (in Persian)
Jones, C. P. (2010). Investments: Analysis and management (R. Tehrani, Trans.), Negah Danesh, Tehran. (in Persian)
Laghrabli, S., Benabbou, L., & Berrado, A. (2016, October). Strategic decision processes classification framework using UTADIS. In Intelligent Systems: Theories and Applications (SITA), 2016 11th International Conference on (pp. 1-6). IEEE.
Manshadi, E. D., Mehregan, M. R., & Safari, H. (2015). Supplier Classification Using UTADIS Method Based on Performance Criteria. International Journal of Academic Research in Business and Social Sciences, 5(2), 31-45.
Markowitz, H. (1952). Portfolio selection. The journal of finance, 7(1), 77-91.
Mehregan, M. R. (2006). Multi-objective decision-making, Faculty of Management, University of Tehran, Iran. (in Persian)
Momeni, M. (2011). Cluster Analysis. Moallef publication, Tehran. (in Persian)
Pendaraki, K., Zopounidis, C., & Doumpos, M. (2005). On the construction of mutual fund portfolios: A multicriteria methodology and an application to the Greek market of equity mutual funds. European Journal of Operational Research, 163(2), 462-481.
Qodsi, S., Tehrani, R. & Bashiri, R. (2015), Portfolio optimization with simulated annealing algorithm, Journal of financial research, 17(1), 141-158. (in Persian)
Reilly, F. K., & Brown, K. C. (2003). Investment analysis and portfolio management (B.G. Eslami, G. Heibati, & F. Roodposhti, Trans.). Institute of Economic Affairs, Tehran.
(in Persian)
Ruicheng, Y., Rongrong, G., & Qing, S. (2016, July). Detecting Fraudulent Financial Data Using Multicriteria Decision Aid Method. In Information Science and Control Engineering (ICISCE), 2016 3rd International Conference on (pp. 321-324). IEEE.
Sadeghi, H., & Forooghi Dehnavi, Sh. (2017), Codification of Dendrograms Portfolio Based on Euclidean Distance Measure (A Comparison between Different Methods of Hierarchical Clustering), Financial Knowledge of Securities Analysis, 10(34), 89-107. (in Persian)
Sepyani, A., Zanjirani, D. M., & Shekarchizadeh, A. (2013). A Mixed Method based on MADM and Genetic Algorithm for Selecting Optimum Portfolio of Stocks. International Journal of Academic Research in Business and Social Sciences, 3(11), 453.
Shahbazi Alenjagh, R. (2013). Performance evaluation and ranking of insurance companies in Tehran Stock Exchange by financial ratios using ANP and PROMETHEE. European Online Journal of Natural and Social Sciences: Proceedings, 2(3 s), 3478-3486.
Soltani-Nejad, M., & Davallou, M. (2016), Portfolio Optimization with Clustering Methods, Asset Management & Financing, 4(4), 1-16. (in Persian)
Varma, K., & Kumar, K. S. (2012). Criteria Analysis Aiding Portfolio Selection Using Dematel. Procedia Engineering, 38, 3649-3661.
Xidonas, P., Mavrotas, G., & Psarras, J. (2009b). A multicriteria methodology for equity selection using financial analysis. Computers & Operations Research, 36(12), 3187-3203.
Xidonas, P., Mavrotas, G., & Psarras, J. (2010). A multiple criteria decision-making approach for the selection of stocks. Journal of the Operational Research Society, 61(8), 1273-1287.
Xidonas, P., Mavrotas, G., Krintas, T., Psarras, J., & Zopounidis, C. (2012). Multicriteria portfolio management .Springer New York.
Zopounidis, C., Doumpos, M., & Zanakis, S. (1999). Stock evaluation using a preference disaggregation methodology. Decision Sciences, 30(2), 313-336.