Portfolio Optimization Based on 7 Chinese Stocks

Abstract

Since 2022, China has entered the post-pandemic era, with its strategic focus shifting from fighting the epidemic to economic recovery. The A-share market is under the influence of uncertain factors such as the novel coronavirus epidemic as well as the outbreak of conflict between Russia and Ukraine. In order to avoid risks and increase returns, optimizing investment portfolio has aroused people's attention and become the focus of research. This paper takes China's stock market as the research object, selects seven industries favored by investors, and selects a representative stock in each industry for portfolio construction and analysis. This paper collects data on the closing price of seven stocks from January 4 to April 1, 2022, and then randomly generates 100,000 different investment portfolios through Monte Carlo method. The portfolios with the lowest volatility and highest Sharpe ratio are built using the mean variance model. The effectiveness of these three portfolios was evaluated with real daily returns from April 6 to May 11, 2022, after acquiring the weights of these equities, and it was compared to the performance of the CSI 300 in the same time frame. The result indicates that the minimum variance portfolio has the largest cumulative return, which exceeds the cumulative return of CSI 300 in the same period, while equally weighted and the maximum Sharpe ratio portfolios generate lower yields than the market level.