A Hybrid Framework for Multi-Stock Trading: Deep Q-Networks with Portfolio Optimization

This paper presents a hybrid framework for multi-stock trading that combines the decision-making ability of Deep Q-Networks (DQN) with the allocation precision of portfolio optimization models. Realistic markets are noisy and non-stationary, and complex action spaces can hinder reinforcement learning (RL) performance. The DQN generates buy/sell signals based on market conditions. The framework passes buy-listed assets to an optimizer, which computes portfolio weights. Five allocation strategies are examined: naïve 1/N, Markowitz Mean–Variance, Global Minimum Variance, Risk Parity, and Sharpe Ratio Maximization. Empirical evaluations on emerging-market exchange-traded funds (ETFs), as well as additional tests on U.S. equities, show that even the baseline DQN outperforms traditional technical indicators. Furthermore, integrating any of the optimization approaches with DQN yields measurable improvements in return-risk performance metrics. Among the hybrid frameworks, DQN combined with Sharpe Ratio Maximization delivers the most consistent gains. The findings highlight the value of decomposing stock selection from capital allocation and demonstrate the effectiveness of the proposed DQN-optimization framework on our testbed.