Sumitomo Mitsui Banking Corporation and Toshiba Corporation have jointly developed two new equity indices powered by advanced quantum-driven technologies.
The indices, known collectively as “SMBC/TOSHIBA Quantum Diversified,” cover both Japanese and US equity markets and aim to improve portfolio diversification.
Equity investment carries the constant risk of sharp market fluctuations triggered by geopolitical developments, changes in economic policy, and other external factors.
Investors operating in uncertain markets are actively seeking new approaches to risk diversification that can shield assets from unexpected shocks.
The two companies combined SMBC’s financial markets expertise with Toshiba’s quantum-driven technologies to tackle large-scale combinatorial optimization problems in portfolio construction.
Individual components for the indices are selected quarterly using calculations performed by Toshiba’s Simulated Bifurcation Machine, a quantum-driven optimization computer.
The weight assigned to each stock is determined by its historical price volatility, with index calculation starting from a base date at the end of 2015.
A core feature of the indices is the selection of stocks with low correlations to one another, aiming to preserve diversification benefits even during broad market downturns.
Conventional classical computers struggle with the immense scale of potential combination patterns involved, making Toshiba’s Simulated Bifurcation Machine the critical enabling technology here.
The methodology also incorporates practical rules accounting for stock liquidity and the need to contain transaction costs during periodic rebalancing, with a joint patent application currently pending.
SMBC led the development of the calculation methodology, drawing on financial engineering expertise from its global market and treasury divisions, and will promote the indices to asset management companies.
Toshiba provides a customised version of its Simulated Bifurcation Machine and will handle system maintenance as well as the quarterly rebalancing calculations.
Daily calculation and distribution of the indices will be carried out by S&P Dow Jones Indices, one of the leading independent providers of global indices worldwide.
S&P Dow Jones Indices will manage accurate adjustments of market data covering corporate actions such as stock splits and dividend payments, delivering transparent and reliable index data.
As a first step in their collaborative initiative, SMBC and Toshiba will begin exploratory discussions with management firms on index funds, ETFs, and other investment vehicles linked to the indices.
The two companies stated that value to investors can only be realised when the indices are used to develop financial products offering practical diversification options to investors in Japan and overseas.
SMBC and Toshiba also intend to continue pursuing the application of quantum and quantum-driven technologies more broadly across the financial sector going forward.