The Application of Portfolio Theory in Practice

Fangni Jiang ()
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Fangni Jiang: Chongqing Technology and Business University, Department of International Business School

A chapter in Proceedings of the 2024 2nd International Conference on Management Innovation and Economy Development (MIED 2024), 2024, pp 516-526 from Springer

Abstract: Abstract With the increasing growth of the capital market, investment is particularly important in the application of the market. On this premise, this paper aims to explore the application of portfolio theory in practical investment activities, and take BYD Co., Ltd. and Bank of China as examples for in-depth analysis. Firstly, the paper reviews the basic framework and core principles of portfolio theory, including the risk diversification effect of portfolio, the trade-off between expected return of assets and risk, and the construction of effective frontier. Subsequently, the article takes BYD and Bank of China as examples to elaborate on how to use portfolio theory to make investment decisions. As the leader of new energy vehicles in China, BYD has high growth potential and large market volatility, while Bank of China, as a large state-owned commercial bank, has stable returns and low risks. By incorporating the two into the same portfolio, the balance of risk and return can be achieved. The article further evaluates the performance of BYD and Bank of China in their portfolios through quantitative analysis. Finally, the paper summarizes the effectiveness and challenges of portfolio theory in practical application, and puts forward targeted suggestions in order to provide investors with more scientific and effective investment reference.

Keywords: Investment Decision Daking; Portfolio Theory; Risk Management; Equity Investment (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-542-3_60

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DOI: 10.2991/978-94-6463-542-3_60

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