Portfolio Optimization for Different Industries under Constraints

School of Economics and Management, Xiamen University Malaysia, Selangor, Malaysia

^* Corresponding author: FIN2309384@xmu.edu.my

Abstract

Portfolio optimization has indispensable role in nowadays financial market. In today’s market with high volatility, portfolio optimization is particularly important. Investing in different industries seems to be a good way to diversify the risk. This paper study the asset allocation based on five different industries, i.e., technology, consumer goods, financial Services, healthcare and energy. To optimize the portfolio, Markowitz model is applied to predict the performance of the portfolio, meanwhile, four constraints which might appear in real world are used to help investors to determine the portfolio they prefer and deal with sophisticated situations. Maximum Sharpe Ratio, the minimum variance as well as the capital allocation line are calculated by Markowitz model and the minimum variance frontier under each constraint is also calculated by SolverTable. One conclusion the author gain is that SPX has high correlations with selected stocks except for NVDA but SPX is not a good choice for investors to balance risk and return. When constraints are added, the minimum variance frontier as well as the capital allocation line (Besides CAL4) behave not so good as before. These findings help investors to explore multiple optimization solutions in different situations, control risk exposures and avoid extreme portfolio allocations.