Abstract
Portfolio construction is one of the most fatal issues of modern finance, which can effectively gain returns or reduce risks. This study constructs portfolios in energy-related assets. Specifically, the Monte Carlo simulations are carried out for a hundred thousand times in order to discover the efficient frontier and find the minimum variance and the maximum sharp ratio portfolio. According to the simulations, the American Electric Power possesses the largest share in minimum variance portfolio, while NextEra Energy for sharp ratio method. The results may benefit certain investor in financial markets and shed lights to focus more on portfolio allocation during constructing.
Highlights
With the improvement of the world economic system, more and more people tend to make their investments less risky with guaranteed returns
Followed by the idea of portfolio selection [1], a large number of scholars have conducted theoretical research related to asset portfolio management
It minimizes the probability that the portfolio return is less than the given "disaster risk level" by means of Safety-First Model, Minimum variance model and VaR model, etc
Summary
With the improvement of the world economic system, more and more people tend to make their investments less risky (less max drawdown) with guaranteed returns. Markowitz theory shows that portfolio management is really important because investors could enjoy the benefits of many good stocks, and could reduce the risk of overall investment. If one holds several stocks simultaneously following by certain rules as a portfolio, the risk might be hedged while still maintain in a high level of gains since the overall risk is spread out. It minimizes the probability that the portfolio return is less than the given "disaster risk level" by means of Safety-First Model, Minimum variance model and VaR model, etc. Shauna Carther Heyford referred to asset allocation in stock investment [3]. Zou and Ye applied Markowitz model occupational the application of asset portfolio theory in stock investment in practice [5]. According to the efficient frontier shows, the best assets allocation and assets performances are obtained. The results in this paper may shed lights for certain investors in the financial markets
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