Portfolio Optimization for 10 Stocks under Constraints

Abstract

Portfolio optimization is now playing a key role in the financial sector. The aim of this article is to analyze asset allocation across a number of sectors including technology, financial services, and industrials. Ten representative companies from these industries are selected, and then the performance of the portfolios is predicted using the Markowitz model and the Index model. Also, four constraints quantified by real financial market factors are used to observe the differences between the two models. Finally, the comparison of the two models under the same constraint and the comparison of the same model under different constraints are illustrated. The results show that, firstly, The Markowitz and index models are very effective when applied to portfolios of risky assets when combined with capital market lines and efficient frontiers. Secondly, using the S&P 500 index as an indicator of the global stock market, the index is favorable for those who choose a low-risk portfolio. These findings may help investors with specific risk appetites make their own investment decisions.