Portfolio Optimization Using Markowitz Model and Index Model – A Study on 10 Selected Stocks

Abstract

Portfolio optimization nowadays plays a significant role in financial industry. This paper aims to analyze the asset allocation of technology, financial services, and consumer defense industries. Ten representative companies were selected from these industries. At the same time, the difference between Markowitz model and Sharpe single index model is observed by using the three constraints of quantification of actual financial market factors. On this basis, this paper optimizes the asset portfolio. This result shows that: first, the correlation coefficient between SPX500 and listed companies is very high, which is a good choice in the portfolio of balancing risk and return. Second, we test several portfolios under 3 constraints, and it is found that a higher return always occurs with a high risk. Third, without the consideration of SP index, investors can get the highest return. The results in this paper may shed light on the financial investors.