PORTFOLIO OPTIMIZATION USING MARKOWITZ MODEL
TL;DR
The analysis indicates that Tech Mahindra recorded the highest positive average daily return among the selected IT companies, while SBIN recorded the highest positive average daily return among the selected banks.
Abstract
Portfolio optimization is a systematic investment approach for balancing expected return and investment risk through diversification. This research paper examines the application of the Markowitz Mean-Variance Model to selected Information Technology and Banking sector companies listed on the National Stock Exchange (NSE) of India. The study uses secondary historical stock-price data for ten companies, comprising five IT companies—TCS, Infosys, Wipro, HCL Technologies and Tech Mahindra—and five banking companies—HDFC Bank, ICICI Bank, Axis Bank, State Bank of India and Kotak Mahindra Bank. Daily returns, average returns, variance, standard deviation, covariance, correlation, portfolio weights, portfolio return and portfolio risk are used to evaluate the risk-return profile. The analysis indicates that Tech Mahindra recorded the highest positive average daily return among the selected IT companies, while SBIN recorded the highest positive average daily return among the selected banks. Wipro and Kotak Mahindra Bank recorded the highest volatility within their respective sectors. The optimized IT portfolio generated a daily return of -0.000478 with portfolio risk of 0.013807, while the optimized banking portfolio generated a daily return of -0.000247 with portfolio risk of 0.013648. The study concludes that the Markowitz framework provides a structured basis for diversification, risk measurement and portfolio construction.