The Optimal Allocation of Securities for Portfolios
DOI:
https://doi.org/10.61173/r59a3s13Keywords:
Markowitz model, Normal distribution, optimal portfolio, minimal risk portfolioAbstract
Portfolio optimization assists in the selection of the optimum portfolio to meet certain goals. The most often used
portfolio optimization model is the Markowitz Model (MM). The approach highlights the need to select assets
complementing one another to reduce risk for investors. It compares the risks and returns of multiple equities to discover
which asset offers the best returns while posing the fewest hazards. To simplify the Markowitz Model, the Index Model
(IM) employs a single element, the market index, which impacts all investment returns. Using the MM and IM, this
study analyzes permitted portfolio areas for ten stocks and one broad equity index. The ten businesses were chosen
from various industry areas. SPX, NVDA (Technology), CSCO (Technology), INTC (Technology), The Goldman Sachs
Group (Financial Services), US Bancorp (Financial Services), TD CN (Financial Services), Allstate (Financial Services),
Procter & Gamble Company (Personal Care Products), Johnson & Johnson (Pharmacy), Colgate-Palmolive (Personal
Care Products).
The firms from several industrial sectors are chosen
to guarantee the risk-diversified final portfolio. As a
consequence, the efficient portfolio employs the weights
that yield the highest returns for a given risk level or
the lowest risk for a given projected return level when
determined using the MM or IM. We concluded from the
data that the IM optimization model well approximates
the MM optimization model by minimizing the number of
estimations necessary for model estimation.
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