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An Optimal Portfolio Performance Analysis of Lq45 Stocks

DOI : https://doi.org/10.36349/EASJEBM.2020.v03i05.005
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A stock is one of the most considered instruments in investing. As with other types of investments, the return of the shares and the degree of risk incurred by the investor are noteworthy. To optimize the yield and minimize the risk, the investors might form a stock portfolio. However, there is a necessity to perform an adequate analysis to set up an optimal portfolio – a portfolio which potentially provides the highest level of profit at a certain level of risk. In this analysis, the risk level and the profit level of the stock portfolio are being compared. This research aims to determine portfolio formation using Single Index Models, Constant Correlation and Markowitz on LQ45 index stocks. The method used is descriptive. This research took samples of stocks that went into the index of LQ45 for four consecutive periods from January 2012 to June 2017. The result of the study indicated that the optimum portfolio formation with the Single Index Method is more considerable than the Constant Correlation Method. It is following the consideration that the return and risk levels in the Single Index Method are more significant than the Constant Correlation Method which is with a return rate of 13.56 per cent rather than the return level of the Constant Correlation Method of 5.01 per cent. In terms of the risk level, the Single Index Method is 5 per cent, while the Constant Correlation Method showed 3 per cent. The high level of risk in the Single Index Method parallels its more substantial return level. The result corresponds to the investment principle of high-risk, high-return. The more considerable risk level of the Single Index Method compared to the Constant Correlation Method is presumably rooted from the less diversified compared to those using the Constant Correlation Method.

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Dr. Afroza Begum

Lecturer, Dept. of Pharmacology and Therapeutics, Shaheed Monsur Ali Medical College & Hospital, Uttara, Dhaka-1230, Bangladesh

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