Portfolio Optimization Using Markowitz Model on Sri-Kehati Index

Abstract

This thesis investigates the portfolio optimization process using the Markowitz model on the SRI-KEHATI index, an esteemed sustainable investment index. The study aims to explore the potential advantages of incorporating environmental, social, and governance (ESG) factors into portfolio construction. By leveraging historical financial data and reliable ESG metrics, this research develops optimized portfolios that strike a balance between risk and return while adhering to the sustainability criteria of the SRIKEHATI index. The methodology encompasses the collection of credible ESG data and financial information for the constituents of the SRIKEHATI index. The Markowitz model is subsequently employed to analyze the risk and return characteristics of each asset within the portfolio. Through the application of optimization algorithms, the study seeks to identify the optimal asset allocation that maximizes risk-adjusted returns, taking into account the ESG criteria outlined by the SRI-KEHATI index. The outcomes of this research provide valuable insights into the effectiveness of portfolio optimization techniques within the realm of sustainable investing. By considering both financial metrics and ESG factors, investors can construct portfolios that align with their sustainability objectives while optimizing risk and return. The findings shed light on the performance of the optimized portfolios and compare them with conventional approaches, thereby demonstrating the potential benefits of integrating ESG considerations into portfolio decision-making. Additionally, this study examines the practical implications associated with implementing sustainable portfolio strategies based on the SRI-KEHATI index. Overall, this thesis contributes to the expanding body of knowledge on sustainable investing and portfolio optimization, specifically focusing on the SRI-KEHATI index. It provides valuable insights for investors, asset managers, and policymakers interested in sustainable investment strategies. Furthermore, it offers a framework for incorporating ESG considerations into the portfolio construction process using the Markowitz model, thereby aiding in the development of more robust and sustainable investment portfolios.