Optimum Risk Portfolio and Eigen Portfolio: A Comparative Analysis Using Selected Stocks from the Indian Stock Market
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Abstract (arXiv)
Designing an optimum portfolio that allocates weights to its constituent stocks in a way that achieves the best trade-off between the return and the risk is a challenging research problem. The classical mean-variance theory of portfolio proposed by Markowitz is found to perform sub-optimally on the real-world stock market data since the error in estimation for the expected returns adversely affects the performance of the portfolio. This paper presents three approaches to portfolio design, viz, the minimum risk portfolio, the optimum risk portfolio, and the Eigen portfolio, for seven important sectors of the Indian stock market. The daily historical prices of the stocks are scraped from Yahoo Finance website from January 1, 2016, to December 31, 2020. Three portfolios are built for each of the seven sectors chosen for this study, and the portfolios are analyzed on the training data based on several metrics such as annualized return and risk, weights assigned to the constituent stocks, the correlation heatmaps, and the principal components of the Eigen portfolios. Finally, the optimum risk portfolios and the Eigen portfolios for all sectors are tested on their return over a period of a six-month period. The performances of the portfolios are compared and the portfolio yielding the higher return for each sector is identified.
Key facts. Cited by 2 papers in the map (data through 7 Oct 2026). Builds on 9 of its 48 references that are in the map. First posted on arXiv 23 Jul 2021.
Builds on
9 of 48 references.
References · 9
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- 2021Volatility Modeling of Stocks from Selected Sectors of the Indian Economy Using GARCHcited by 12
- 2021Profitability Analysis in Stock Investment Using an LSTM-Based Deep Learning Modelcited by 11
- 2021Design and Analysis of Robust Deep Learning Models for Stock Price Predictioncited by 6
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Citing papers per year: 2022: 2.
2 papers.