Ally is testing the use of quantum computing to build investment portfolios

Ally is testing the use of quantum computing to build investment portfolios

Ally Financial has partnered with quantum computing researchers to develop a new algorithm to improve the tracking of financial indexes using quantum computing.

The digital financial services company has worked with Multiverse Computing, a quantum computing solutions company, and global consulting firm Protiviti to develop a method that automatically optimizes investment portfolios with returns matching traditional portfolios using sets of data. much smaller actions.

Sathish Muthukrishnan, chief information, data and digital officer at Ally, said the Detroit-based bank, which has $186 billion in assets, is experimenting with quantum computing use cases in its labs. technology for over a year.

“Quantum unlocks two things: the amount of data I can use and the concurrency of models I can have,” Muthukrishnan said in an interview. “Running different datasets at the same time is very time consuming using traditional models. Quantum gives me the ability to do this at a much faster rate, giving me the opportunity to bring the scenario analysis on a completely different level.”

Quantum computing uses qubits (quantum bits), which can exist in multi-dimensional states, to process data, whereas classical computers are limited to storing information in binary form, either zeros or ones. Quantum computers can be used to sift through and analyze large amounts of numbers extremely quickly.

Ally has hired a few quantum physicists and partnered with institutions like Microsoft to research quantum computing on the tech giant’s Azure platform. For now, Muthukrishnan said the main goals are to discover use cases by partnering with other companies and businesses. Ally does not currently use quantum computing in practice, but the CIO said the company is in active conversation internally about how and when to implement the technology.

The recent research, conducted over a year, shows that the method, a hybrid classical-quantum approach, could build portfolios that outperformed a target index’s risk profile by up to twice, while using fewer stocks. The number of stocks in the researchers’ Nasdaq 100 fund was four times smaller than traditional portfolios and ten times smaller in the S&P 500 fund.

In practice, financial institutions could use the algorithm to manage ETF funds with greater speed, accuracy and efficiency, said Konstantinos Karagiannis, director of Quantum Computing Services at Protiviti. Karagiannis said that the notable aspect of this project, which was detailed in a recently published research paper, is the limited amount of actions required for the quantum computer to continue to outperform traditional portfolios. He added that while portfolio optimization can take up to 30 hours on some classical computers, the new algorithm runs almost instantly on a quantum computer.

“Right now, we’re looking at this customer benefit — this idea that, looking at what’s out there, we think it’s faster, better, cheaper,” Karagiannis said. “For the first time, we’re hoping to get with quantum what we’ve never had before… There’s this whole trade-off, we’re hoping quantum will give you everything.”

There are headwinds to the use of quantum computing. Quantum computers are not commercially available, for businesses to use cloud-based quantum computing-as-a-service offerings from companies like IBM, Microsoft and, in this case, D-Wave. Additionally, only a handful of cloud-based quantum computers have the capabilities large enterprises need to run advanced programs, Karagiannis said, which means access can sometimes be a challenge. Developing algorithms that can run on quantum computers requires certain skills that not all quants and programmers possess.

Still, Karagiannis said for applications that don’t need real-time solutions, there are compelling use cases for quantum. Muthukrishnan added that he wants Ally to lead the quantum industry when the technology becomes more mainstream.

“We will continue to experiment with quantum,” Muthukrishnan said. “We will continue to see how we can leverage our data using quantum computing and see what value we can add for our business as well as for our customers.”

Sam Palmer, head of financial engineering at Multiverse, co-authored the research paper with Karagiannis and Adam Florence, director of data science at Ally.

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