Abstract
In finance area, portfolio construction is one of the most vital questions since the primary work of modern finance and attract numerous studies. In this paper, we focused on this issue in pharmaceutical industry since the industry is crucial for human beings. We adopted several methods for portfolio construction, like Equal Weighted Model, Monte Carlo simulation, and maximize Sharpe ratio etc. Specifically, five assets are selected. Then based on the Monte Carlo method, we constructed two optimized portfolios in the framework of the efficient frontier, i.e., portfolios with minimum variance and maximum Sharpe ratio. By analyzing the two portfolios, we found that the NVS accounts for the largest proportions in the optimized portfolio. The results in this paper may shed lights for certain investors who invest in pharmaceutical industry.
Highlights
In finance area, portfolio construction is one of the most vital question asked every day [1]
We derived pharmaceutical stock portfolios based on models such as equal weighting models and Monte Carlo simulations, and back to the test to derived the optimal weights related to maximum Sharpe ratio or minimum variance
We found that the Monte Carlo method has significant advantages over the equal weight method
Summary
Portfolio construction is one of the most vital question asked every day [1]. Building a portfolio can decrease risks effectively. All the above aspects may change the portfolio construction regarding the medical industry during the corona-virus pandemic. Numerous portfolio constructions regarding pharmaceutical industry have been done. There are still few studies on the selection and combination of pharmaceutical industry stocks using quantitative methods during corona-virus pandemic, and the related research is needed. We derived pharmaceutical stock portfolios based on models such as equal weighting models and Monte Carlo simulations, and back to the test to derived the optimal weights related to maximum Sharpe ratio or minimum variance. After compared to NASDAQ Composite Index, it provides investors with reference for stock selection in the pharmaceutical sector, especially during the corona-virus pandemic, it is important for investors to utilize the chance and have a clear expectation for the future.
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