Portfolio Selection

Group 16

 

 

Spreading the risks through portfolio diversification is the key to investment success. However, minimizing the portfolio risk will tend to scarify the portfolio rate of return. Depending how much you dislike taking risk, you need a portfolio strategy that achieves your goal. Therefore, the search for an optimal portfolio selection is significantly important.

• The Model: A mathematical model is developed to guide you to select an optimal portfolio that maximize rate of return and minimize the portfolio risk, given various types of investments of your choice. The model also allows input of your willingness to assume risk.

• Model and Solution Critique and Avenues for Further Studies are also available for the readers' interests.

The model is developed based on the concept of efficient portfolio. The risk factor of an investment can be viewed as the fluctuations of the performance of an investment. Given historical performance, we can measure this fluctuation. The standard statistical measure of this fluctuation is variance of the investment over time. Furthermore, we can use covariance to measure the degree to which the two investments are related.

For the reader not familiar with the concept of portfolio selection, a more detailed explanation is available.

 Given 8 stock and bond investments and the rate of risk free deposits, an optimal portfolio is found.

• Data 
• Solution
• Sensitivity Analysis

• This links you to the Optimization Technology Center for the following exercise of optimizing your own portfolio and it uses another approach of optimal portfolio selection modeling.
• Select a set of stocks from the menu.
• Allow the solver to create an optimal portfolio that meets the constraints.
• View the optimal menu and see charts and graphs representing various data.
• DISCLAIMER: Remember that these results are for educational purposes only. The optimal portfolio is based on old historical data and is not to be used for investment purposes.
• The Optimization Technology Center is a joint enterprise of Argonne National Laboratory and Northwestern University. It was founded in 1994 with support from the U.S. Department of Energy and Northwestern University.

Give it a try ! 

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• References
• Special thanks to our web site administrator Jim Wei
• Designed by Monica Tsai