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arXiv:2607.24722 · Physical Review Applied

Scalable Variational Quantum Optimization via Pauli Correlation Encoding: Application to Large-Scale Power Demand Portfolio Optimization

Takuya Yoshioka, Keita Sasada, Riku Usuki, Yuichiro Nakano, Keisuke Fujii

quant-phSubmitted Jul 27, 2026• Announced Jul 28, 2026• 0 citations
v1 · Jul 27, 2026v2 · Sep 11, 2026
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Abstract

Variational quantum algorithms offer a promising route to combinatorial optimization, but their applicability is limited by the challenge of encoding large-scale problems within restricted qubit resources. In this work, we introduce a scalable variational framework based on Pauli correlation encoding (PCE) and apply it to electric power demand portfolio optimization. Binary variables are represented through expectation values of Pauli correlation operators, which encode multi-body correlations of the quantum state and provide a continuous relaxation enabling compact representations with few qubits. We further propose a two-stage hybrid formulation, in which a time-averaged problem provides initialization for a time-resolved optimization. Numerical simulations demonstrate near-optimal performance across problem sizes ranging from $m$=18 to 10,296, with normalized cost gaps on the order of $10^{-4}$ relative to solutions with certified optimality. We show that the performance is governed by the interplay between continuous relaxation and discretization: the effective resolution of the correlator representation determines how reliably improvements in the continuous loss translate into better discrete solutions, with larger systems exhibiting more consistent behavior. Finally, we demonstrate robustness on a trapped-ion quantum processor, where high-quality solutions are obtained despite noise and finite sampling. These results establish PCE as a physically motivated and qubit-efficient framework for large-scale combinatorial optimization.

Journal reference
Phys. Rev. Applied 26, 044004 (2026)
DOI
10.1103/568y-4264
Comments
17 pages, 10 figures

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Portfolio optimization is a cornerstone of financial decision-making, traditionally relying on classical algorithms to balance risk and return. Recent advances in quantum computing offer a promising alternative, leveraging quantum algorithms to efficiently explore complex solution spaces and potentially outperform classical methods in high-dimensional settings. However, conventional quantum approaches typically assume a one-to-one correspondence between qubits and variables (e.g. financial assets), which severely limits the applicability of gate-based quantum systems due to current hardware constraints. As a result, only quantum annealing-like methods have been used in realistic scenarios. In this work, we show how a gate-based variational quantum algorithm can be applied to a real-world portfolio optimization problem by assigning multiple variables per qubit. Specifically, we address a problem involving over 250 variables, where the market graph representing a real stock market is iteratively partitioned into sub-portfolios of highly correlated assets. This approach enables improved scalability compared to traditional variational methods and opens new possibilities for quantum-enhanced financial applications.