Portfolio construction based on MACD and Beta coefficient

Abstract

Stock portfolio refers to a method that investors choose and match stocks according to certain laws and principles according to the risk degree and profitability of various stocks, so as to reduce investment risk, which is usually considered as the effective way in the stock market. This paper assesses portfolio construction based on moving average convergence divergence (MACD) and beta coefficient. We classify stock groups by beta coefficient and then use the MACD method to simulate the average return to find whether there is any variation in average return between groups. Moreover, we discuss the hedged circumstance by S&P 500 index. Then we compare the average return and Sharpe ratio among the selected groups in both hedged and unhedged conditions. The results show that the stocks with a lower beta coefficient boost a relatively higher average return. The empirical results in this paper will provide a method of balancing risk and average returns with the considerations of beta coefficient, and it will benefit related investors in financial markets.