Algorithmically Efficient Identification of Volatile KSE-30 Equities and Their Role in Optimized Portfolio Allocation

Nazish Shahid ()
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Nazish Shahid: Forman Christian College (A Chartered University)

SN Operations Research Forum, 2025, vol. 6, issue 1, 1-16

Abstract: Abstract To identify the assets contributing to downward market trend, the annual equity returns’ profile against the benchmark, Pakistan Stock Exchange (PSX)-KSE 30, has been assessed using machine learning (ML) calibration techniques. The degree of co-movement between an equity and the market index is determined by aligning an approximate multi-factor credit copula model with a standardized regression model. The inconsistent use of explicit regression analysis to demonstrate a stock’s sensitivity to market credit fluctuations is highlighted, along with the contrasting roles of the idiosyncratic stock factor in a one-factor copula model and the regressed error term in the regression model. The simulated financial forecast model anticipates annual equities’ volatility in response to market movements both for auto-correlated stocks and for stocks in the absence of auto-correlation. Additionally, a computationally efficient portfolio optimization scheme is proposed to allocate KSE-30 assets to an optimal portfolio. The roles and placement of highly, less or moderately volatile assets in the optimal portfolio are further discussed.

Keywords: Credit copula; Stock and market index returns; Efficient frontier; Machine learning calibration; Portfolio optimization (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s43069-025-00421-4

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