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End-to-End Neural Shrinkage of Indefinite Pairwise Correlation Matrices for Small-Cap-Inclusive Portfolios

arXiv · AI, language, vision and robotics · article · Aug 31, 2026 · UTC

Small-cap-inclusive equity universes contain recently listed and intermittently traded securities, so enforcing a common look-back discards a substantial fraction of the available information. Pairwise-complete estimation preserves the longest overlap for each asset pair, but the resulting correlation matrix can be indefinite because its entries are computed on different samples. This prevents direct use in Markowitz optimization and falls outside the assumptions of standard random-matrix shrinkage. We adapt a rotation-invariant neural covariance estimator to this setting. The model computes m

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