Analysis of Investment Portfolios Formed with Stocks from Sectors Largely Impacted by COVID-19

Chun To Pun

doi:10.54691/bcpbm.v44i.4796

Authors

Chun To Pun

DOI:

https://doi.org/10.54691/bcpbm.v44i.4796

Keywords:

Portfolio optimization; Single-index model; Sharpe ratio; Systematic risk; Risk-averse.

Abstract

COVID-19 has led the market into a highly volatile period. Risks in investment have increased significantly during this time. Although risk-prone investors are able to withstand the high risk in investment and continue to invest, risk-averse and risk-neutral investors do not have that level of risk tolerance. This study focuses on the stocks from sectors that are highly affected by the pandemic, and it aims to analyze the best sector for investment and construct an optimal portfolio that is able to minimize the risk while keeping a reasonable rate of return for the investors. This study uses the daily adjusted closing price for stocks from January 31st, 2019, to May 12th, 2021 for calculation. The study makes use of Sharpe’s single-index model to perform portfolio optimization. As a result, the study has found that the healthcare sector is indeed the best sector to invest in during the pandemic, as all of the low-risk portfolios have set weight heavily in the healthcare stocks. The portfolio formed by healthcare stocks and technology stocks is able to obtain a low-risk level while returning at a high rate.

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