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Analysis of Optimal Portofolio Formation Using Markowitz Model and Portofolio Performance Evaluation

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  • Purdanto, Andisyah

Abstract

The year 2020 was a challenging year for investment worldwide, especially for the stock market. This was due to the World Health Organization (WHO) declaring Covid-19 a pandemic. This resulted in the composite stock price index (IHSG) dropping from 6300 to 3900. High volatility occurred from March 2020 until the end of 2022, and traders took advantage of this by engaging in high-risk short selling. The purpose of this research is to analyze the formation of a Markowitz portfolio and evaluate the performance of portfolios formed from the IDX30 index and the BSE Sensex index, focusing on the period from one month before the rebound, which is from August 2020 to January 2023. This analysis aims to provide guidance in selecting companies for investment. The research methodology is descriptive research. The methodology used is Markowitz modeling to obtain an optimal portfolio, followed by evaluation using the Treynor, Sharpe, and Jensen indexes. The results, for the IDX30 index, an optimal portfolio comprising six stocks achieved an expected annual return of 19.97% with a risk level of 8.77%. In contrast, the optimal portfolio for the BSE Sensex index consisted of eight stocks, yielding an expected annual return of 28.4% with a risk level of 4%. Regarding performance, the portfolio formed from the BSE Sensex index outperformed the IDX30 portfolio when assessed using the Sharpe indices. However, considering the Jensen and Treynor index, the optimal portfolio formed from the IDX30 index exhibited superior performance.

Suggested Citation

  • Purdanto, Andisyah, 2024. "Analysis of Optimal Portofolio Formation Using Markowitz Model and Portofolio Performance Evaluation," OSF Preprints h2yja, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:h2yja
    DOI: 10.31219/osf.io/h2yja
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