Portfolio Analysis of Different Industries under Constraints

Abstract

Building an effective portfolio is critical for it can decrease investment risk and the impact of fluctuations in the share price of a single firm. This paper selects five example stocks from diverse industries, using the mean variance model and the Index model to estimate the best combination of these stocks, then adds five significant limits to both models to see how components in the real financial market effect the portfolio. The Minimal Variance Frontier is used to compare the impact of five constraints in this paper, and it is discovered that different models have different effects under the same constraints, constrained portfolios have less volatility than unconstrained portfolios, and not allowing short positions reduces risk while also lowering the overall return rate. The findings in this paper are valuable to the industry's research on the best allocation of financial assets and can benefit financial market investors.