Portfolio Construction Based on Markowitz Model and Index Model for Multiple Assets

Abstract

Asset allocation has a long history, and is of vital importance. In retrospect, big events (e.g., the World War) gave rise to various shocks to the financial markets and brought large fluctuations. Contemporarily, COVID-19 has been greatly affected the daily life of human beings as well as the stock market for 3 years. On this basis, the research topic is about portfolio construction for multiple assets using Markowitz Model and Index Model in order to gain stable and risk-hedge return from the volatile market. The paper includes a deep analysis of 3-year data of 8 stocks from 3 types of companies in USA. Then it calculates the Minimal Variance Point, Maximum Sharpe Ratio, together with the efficient and inefficient portfolio construction with regard to 3 constraints. Based on the evaluations, this study provides an idea and method of asset allocation in a certain situation, and is appliable in various situations if is flexibly used. These results shed light on guiding further exploration of portfolio construction.