A Study on Sharpe’s Single Index Model and Its Application to Build an Optimal Portfolio with Selected Stocks of Nifty 50 Index

Abstract

The primary goal of an investor is to generate enough returns with minimum risk. The investor shouldhave complete knowledge of the investment in order to achieve the goals of achieving high returns. Ifan investor does not achieve reasonable returns with the agreed risk, then it is better not to invest inthose securities, according to an analysis using Sharpe's single index model. Therefore, Sharpe'ssingle index model helps an investor choose a portfolio before making an investment decision. Themain objective of this project is to evaluate selected stocks from a variety of sectors using Sharpe'ssingle index model, which helps the investor to determine the rate of return and build a portfolio innifty terms. The project report includes monthly closing prices of 18 companies comprising 3 firmsfrom 6 sections, selected from 1st January 2016 to 31St December 2020 along with the closing priceof the NSE Index. Using Sharpe's single index model, computed the required rate return and risk forthe selected concerns. Every investor experiences dilemma for selecting various stocks for hisportfolio. Investors will run into difficulties while deciding how much money to invest in eachsecurity. Sharpe's single index can be used to create the best portfolio and help investors escapeconfusion. The study concludes that investment in securities is better than investing in banks to getmaximum returns.