Approaching Portfolio Optimization through Empirical Examination

Abstract

In this project, the study focuses on the portfolio profitability, one of the most vital quantitative-finance measurements. Out of all possible portfolios being considered, portfolio optimization is the process of selecting the best portfolio, according to some objective. It is a quantitative principle based on statistics, research methods, and advanced mathematical calculation. In this model, financial risk is calculated to usually be minimum while factors such as expected return are maximized. These factors may include physical aspects, "tangible" indicators, and financial metrics. Based on this assumption, an investor is seeking to maximize the portfolio's expected return despite a certain level of risk. Obtaining a higher expected return with these portfolios, called efficient portfolios, usually will let investors to take on more risk, so investors are sometimes forced to choose between risk and return. An asset's weight is a measure of its concentration within a particular class. In order to optimize portfolios, investors assign 'optimization weights' to each asset class and each asset within the class. By weighing the mean and variance of the whole portfolio, investors can approach the best plan with the most profitability.