  A fractal approach to the long-short portfolio optimization is proposed. The
algorithmic system based on the composition of market-neutral spreads into a
single entity was considered. The core of the optimization scheme is a fractal
walk model of returns, optimizing a risk aversion according to the investment
horizon. The covariance matrix of spread returns has been used for the
optimization and modified according to the Hurst stability analysis.
Out-of-sample performance data has been represented for the space of exchange
traded funds in five period time period of observation. The considered
portfolio system has turned out to be statistically more stable than a passive
investment into benchmark with higher risk adjusted cumulative return over the
observed period.

Portfolio Management;Chaotic Dynamics