International Journal of Advance Research Publication and Reviews

International Journal of Advance Research Publication and Reviews
Peer-Reviewed | Multi-Disciplinary Journal

ISSN: 3049-0103 (O)

Impact Factor: 4.33

Artificial Intelligence Driven Portfolio Optimization for Managing Market Volatility and Improving Risk Adjusted Investment Returns

Author

Badebor Otunga

Abstract

 Global financial markets are increasingly characterized by volatility, interconnected asset movements, rapidly changing economic conditions, and large volumes of complex financial data, creating significant challenges for conventional portfolio management strategies. Traditional optimization techniques often depend on static assumptions regarding expected returns, correlations, and risk distributions, limiting their effectiveness during unstable market conditions. This study presents an artificial intelligence-driven portfolio optimization framework for managing market volatility and improving risk-adjusted investment returns. The framework integrates historical asset prices, trading volumes, volatility indicators, macroeconomic variables, market sentiment, and cross-asset correlations to construct dynamic investment signals. Machine learning and predictive analytics are employed to forecast returns, estimate changing risk exposures, identify market regimes, and support adaptive asset allocation. Portfolio weights are subsequently optimized under return, volatility, diversification, and investment constraints, with periodic rebalancing responding to changing market conditions. Performance is evaluated using cumulative returns, volatility, Sharpe ratio, Sortino ratio, maximum drawdown, and benchmark comparisons. The proposed approach demonstrates how intelligent portfolio optimization can strengthen downside-risk management, improve diversification, and support more resilient investment decisions across volatile financial markets.

Keywords

Artificial Intelligence; Portfolio Optimization; Market Volatility; Risk-Adjusted Returns; Machine Learning; Asset Allocation

DOI : https://doi.org/10.5281/zenodo.22767687

Full Text:

Download Paper PDF

References

  1. Olanrewaju AG. Artificial intelligence in financial markets: Optimizing risk management, portfolio allocation, and algorithmic trading. International Journal of Research Publication and Reviews. 2025 Mar;6(3):8855-70.
  2. Balcerzak AP, Valaskova K, Nagy M. Artificial intelligence in financial decision-making: Enhancing portfolio management and risk assessment. Equilibrium. Quarterly Journal of Economics and Economic Policy. 2025 Sep 30;20(3):863-75.
  3. Samson Onaopemipo Amoran, Okolie Awele, Oluwatosin Lawal, Okon Godspower Emmanuel. (2026). An Explainable Artificial Intelligence Framework for Early Warning of Systemic Financial Risk. Journal of Computational Analysis and Applications (JoCAAA), 35(4), 69–81. Retrieved from https://eudoxuspress.com/index.php/pub/article/view/5307
  4. Agal S, Raulji K, Odedra ND. A machine learning approach to risk based asset allocation in portfolio optimization. Scientific reports. 2025 Nov 26;15(1):42263.
  5. Chukwunweike J. Coordinating PLC-based load shedding and variable-speed drives to prevent transformer overloading during industrial production peaks. Int J Electr Data Commun. 2025;6(2 Pt B):118-135. doi:10.22271/27083969.2025.v6.i2b.109.
  6. Hossain MA. Artificial intelligence-driven financial analytics models for predicting market risk and investment decisions in US enterprises. ASRC Procedia: Global Perspectives in Science and Scholarship. 2025 Apr 29;1(01):1066-95.
  7. Obunadike TC. Leveraging AI forecasting to quantify tariff-induced food price volatility in net-importing nations. Int J Res Publ Rev. 2025;6(6):12441-12458. doi:10.55248/gengpi.6.0625.23102.
  8. Senthil B. Optimizing share market portfolios: A comparative study of traditional and AI-driven investment strategies. International Journal of Applied Mathematics. 2025 Nov 9;38(5):1355-70.
  9. Samuel Addo. Harnessing AI-powered financial forecasting tools to improve risk management, investment strategies, and overall corporate profitability across industries. International Journal of Science and Research Archive, 2023, 09(02), 1175-1192. Article DOI: https://doi.org/10.30574/ijsra.2023.9.2.0653
  10. Ambuli TV, Venkatesan S, Sampath K, Devi K, Kumaran S. AI-Driven Financial Management Optimizing Investment Portfolios through Machine Learning. In2024 7th International Conference on Circuit Power and Computing Technologies (ICCPCT) 2024 Aug 8 (Vol. 1, pp. 1822-1828). IEEE.
  11. Uzoh E. Explainable AI and customer behavioral signals for high-precision account takeover and identity risk detection in e-commerce platforms. Asian J Manage Commerce. 2025;6(2 Pt V):2079-2090. doi:10.22271/27084515.2025.v6.i2v.1443
  12. FROLOV A, Boiko R, Rudevska V, Butenko D, Moisiiakha A. Evaluating modern quantitative methods for investment portfolio management under market uncertainty. Journal of Applied Economic Sciences. 2025 Sep 1;20(16):427.
  13. Adeoti D, Obunadike TC. Artificial intelligence for global food security: data-driven strategies for climate-resilient agricultural systems. Int J Eng Technol Res Manag. 2019;3(12):130.
  14. Schrettenbrunner MB. Artificial-intelligence-driven management: Autonomous real-time trading and testing of portfolio or inventory strategies. IEEE Engineering Management Review. 2023 Jun 23;51(3):65-76.
  15. Ogan RK. Predictive anomaly detection for real-time virtual account transactions and API-driven payment processing across enterprise banking platforms. Int J Comput Appl Technol Res. 2024;13(12):298-308. doi:10.7753/IJCATR1312.1023.
  16. Samuel Addo. Causal AI for strategic business planning: uncovering latent drivers of long-term organizational performance and resilience. World Journal of Advanced Research and Reviews, 2025, 26(2), 895-912. Article DOI: https://doi.org/10.30574/wjarr.2025.26.2.1738
  17. Uzoh E. Integrating identity intelligence and payment behavior for AI-driven financial anomaly detection and enterprise risk assessments. Int J Finance Manage Econ. 2026;9(8):146-156. doi:10.33545/26179210.2026.v9.i8.937.
  18. Sutiene K, Schwendner P, Sipos C, Lorenzo L, Mirchev M, Lameski P, Kabasinskas A, Tidjani C, Ozturkkal B, Cerneviciene J. Enhancing portfolio management using artificial intelligence: literature review. Frontiers in Artificial Intelligence. 2024 Apr 8;7:1371502.
  19. K. Pilla, "Sweat2Scroll: An Energy-Efficient Policy Enforcement Architecture for Mobile Edge Environments Using WebAssembly," SoutheastCon 2026, Huntsville, AL, USA, 2026, pp. 01-08, doi: 10.1109/SoutheastCon63549.2026.11476032.
  20. Jangra G, Irfan M, Jangra M, Verma C. Artificial intelligence approach to portfolio management: Enhancing decision-making, efficiency, and Alpha generation. InIssues of Sustainability in AI and New-Age Thematic Investing 2024 (pp. 59-73). IGI Global Scientific Publishing.
  21. Alawode A, Obunadike TC. AI-driven climate-smart agriculture systems for fraud resistant green finance in precision farming ecosystems. Int J Comput Appl Technol Res. 2023;12(12):168-184. doi:10.7753/IJCATR1212.1019.
  22. Jordan Smith DK. Intelligent Portfolio Optimization Using Hybrid AI and Statistical Models. International Journal of Advanced Engineering Technologies and Innovations. 2024 Dec 20;2(01):785.
  23. Singh N, Jha W, Gupta P, Gupta KK. Artificial Intelligence driven Portfolio Management. In2024 IEEE Recent Advances in Intelligent Computational Systems (RAICS) 2024 May 16 (pp. 1-6). IEEE.
  24. Ogan RK. Machine-learning framework for predicting point-of-sale integration failures across digital ordering, payment, and third-party delivery technology ecosystems. Int J Res Publ Rev. 2025;6(12):8887-8898.
  25. Wang D. A literature study of portfolio management: integrating cash optimization, AI, financial modeling, and sustainable investment strategies. In2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025) 2025 Jul 3 (pp. 1036-1046). Atlantis Press.
  26. Racheal Kikachukwu Ogan. (2023). AUTOMATED CONFIGURATION COMPLIANCE ANALYTICS FOR DETECTING OPERATIONAL DRIFT AND PREVENTING SERVICE DEGRADATION ACROSS MULTI-LOCATION RESTAURANT TECHNOLOGY SYSTEMS. INTERNATIONAL JOURNAL OF ENGINEERING TECHNOLOGY RESEARCH & MANAGEMENT (IJETRM), 07(12), 807–819. https://doi.org/10.5281/zenodo.22267240
  27. Ope E, Alli YR. Intelligent Portfolio Construction with Artificial Intelligence and Strategic Decision Models for Superior Asset Allocation and Risk Control. Communication In Physical Sciences. 2024 Dec 31;11(4):1281-94.
  28. Obunadike TGC, Alawode A. AI-enhanced scenario planning for U.S. food trade policy: anticipating global supply chain shocks and food insecurity risks. World J Adv Res Rev. 2025;26(2):943-962. doi:10.30574/wjarr.2025.26.2.1786.
  29. Ali O. Deep Learning for Portfolio Optimization: An AI-Driven Approach to Risk-Adjusted Returns. Available at SSRN 5510579. 2025 Sep 20.
  30. Nayebale FI. Technical framework for real-time U.S. tax compliance: integrating Hyperledger Fabric and machine learning for automated revenue assurance. Int J Comput Appl Technol Res. 2026 Jun;13(10):1015. doi:10.7753/IJCATR1310.1015.
  31. Onyeka EJ. Data-Driven Financial Risk Mitigation in Energy Investments: Optimizing Capital Allocation and Portfolio Performance. Asian Journal of Economics, Business and Accounting. 2025 Apr 15;25(4):523-31.
  32. Racheal Kikachukwu Ogan. Machine-learning-based API failure prediction and root-cause analytics for improving reliability of enterprise banking integration architectures at scale. Int J Comput Artif Intell 2021;2(2):142-153. DOI: 33545/27076571.2021.v2.i2a.378
  33. Ndikum P, Ndikum S. Advancing investment frontiers: Industry-grade deep reinforcement learning for portfolio optimization. arXiv preprint arXiv:2403.07916. 2024 Feb 27.
  34. Moosa A, AlKhena MK, Ali M, Kumaraswamy S. Beyond Tradition: The AI Frontier in Portfolio Management. In2024 International Conference on Sustainable Islamic Business and Finance (SIBF) 2024 Nov 27 (pp. 1-6). IEEE.
  35. Obunadike TC. Leveraging AI forecasting to quantify tariff-induced food price volatility in net-importing nations. Int J Res Publ Rev. 2025;6(6):12441-12458. doi:10.55248/gengpi.6.0625.23102.
  36. Yaramolu LS. AI-powered portfolio management: Transforming wealth management through intelligent automation. Journal of Computer Science and Technology Studies. 2025 Apr 29;7(3):14-23.
  37. Nweke OP. Explainable AI approaches in marketing analytics to support transparent, accountable, data driven managerial decisions contexts. Int J Comput Artif Intell. 2023;4(1):89-102. doi:10.33545/27076571.2023.v4.i1a.269
  38. Jaladi SR, Chandran P, Policepatil S, Venkatarathnam N, Basha M. AI and Machine Learning in Portfolio Management: Strategies and Outcomes. In2025 Tenth International Conference on Science Technology Engineering and Mathematics (ICONSTEM) 2025 Nov 6 (pp. 1-9). IEEE.
  39. Ogan RK. Risk-based API governance for predicting integration failures, security anomalies, and service degradation across hybrid enterprise application environments. Int J Finance Manage Econ. 2024;7(2):871-882. doi:10.33545/26179210.2024.v7.i2.946.
  40. Ryali N, Kandregulaz R, Srilakshmi S, Bikku T. AI-Augmented finance for improving risk assessment and portfolio management. InConnecting Intelligence (pp. 809-814). CRC Press.

 

Top