Construction of Novel Portfolio Based on Modern Portfolio Theory

Yundi Zhang

2024

Abstract

Modern Portfolio Theory (MPT) suggesting diversifying portfolios to reach an optimal trade-off between returns and risks is the footstone of practical financial investments. Nowadays, portfolio construction has continuously embraced novel types of assets to enhance returns and manage risks rather than solely containing traditional stocks and bonds. This study constructs a novel portfolio under the MPT framework and discusses weight allocation to make the portfolio the most efficient. One hundred thousand Monte Carlo simulations are carried out to discover the Efficient Frontier, and the Solver technique in Excel is used to put constraints on objective functions to draw the Capital Market Line (CML). The allocation of portfolios with the highest Sharpe Ratio, the highest return and the minimum volatility, has been explained and discussed. For results, investors who want to optimize their portfolios and have a certain level of risk tolerance should focus more on cryptocurrency and specific futures. This study may benefit investors interested in novel assets in markets by having a clearer understanding of their weight allocation according to their preferences.

Paper Citation

in Harvard Style

Zhang Y. (2024). Construction of Novel Portfolio Based on Modern Portfolio Theory. In Proceedings of the 1st International Conference on E-commerce and Artificial Intelligence - Volume 1: ECAI; ISBN 978-989-758-726-9, SciTePress, pages 491-495. DOI: 10.5220/0013269300004568

in Bibtex Style

@conference{ecai24,
author={Yundi Zhang},
title={Construction of Novel Portfolio Based on Modern Portfolio Theory},
booktitle={Proceedings of the 1st International Conference on E-commerce and Artificial Intelligence - Volume 1: ECAI},
year={2024},
pages={491-495},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0013269300004568},
isbn={978-989-758-726-9},
}

in EndNote Style

TY - CONF

JO - Proceedings of the 1st International Conference on E-commerce and Artificial Intelligence - Volume 1: ECAI
TI - Construction of Novel Portfolio Based on Modern Portfolio Theory
SN - 978-989-758-726-9
AU - Zhang Y.
PY - 2024
SP - 491
EP - 495
DO - 10.5220/0013269300004568
PB - SciTePress