Portfolio Optimization Based On 6 American Stocks
DOI:
https://doi.org/10.54097/qr7wjp60Keywords:
Portfolio optimization; Sharpe ratio; risk-return analysis; S&P 500.Abstract
This paper constructs an optimal portfolio and compares the portfolio with the SPDR S&P 500 ETF Trust (SPY) using the maximum Sharpe ratio model. Six stocks from different sectors in the S&P 500 were selected: Apple Inc. (AAPL), JPMorgan Chase & Co. (JPM), Johnson & Johnson (JNJ), Nike Inc. (NKE), ExxonMobil (XOM), and Boeing (BA). Historical monthly data from January 2020 to December 2022 were used to calculate the optimal portfolio weights. The portfolio's cumulative return over the following two years (2023–2024) was -18.47%. In contrast, the SPY achieved a return of 53.26%. Although the model generated the highest Sharpe ratio within the in-sample period, the result did not extend to the out-of-sample test. The portfolio underperformed due to unstable returns, market shifts, and high exposure to volatile stocks. The findings indicate that market indices can provide more stable returns than individually constructed optimal portfolios in real investment environments.
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