Comparison of Portfolio Optimizations under Markowitz Model in Technology Sector and Financial Services Sector

Abstract

In the period of Covid-19, different sectors received different levels of shocks, which gave investors a degree of caution when investing in various sectors. Therefore, portfolio optimization - using specific model to assign weights of stocks to achieve a higher return while reducing risk – becomes a popular strategy. This paper chooses the Markowitz model to find optimal sector-based portfolios, specifically in technology sector and financial services sector, as well as portfolios that contains stocks in both sectors. The study uses Python to do Monte Carlo simulation, finding two optimal portfolios with maximum Sharpe ratio and minimum volatility for each sector(s), and finally comparing performances to test if the sector-based portfolio works better than the inter-sector portfolio. According to results, the minimum volatility portfolio in combined sectors reaches the same return of 0.11 as the minimum volatility portfolio in technology sector, but with lower volatility. It means the inter-sectors portfolio is better off when seeking minimum volatility. On the other hand, the maximum Sharpe ratio portfolios in technology sector, financial services sector, and combined sectors have values of returns and volatility ordering from highest to lowest. As a result, with current information, without investors’ investment preference, the optimal maximum Sharpe ratio portfolio cannot be determined and needed further exploration.