Portfolio Theory in real life practice: Building Optimal Portfolio

Junxiao Qian ()
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Junxiao Qian: Glasgow University, Business Economics (SocSci) in the College of Social Sciences

A chapter in Proceedings of the International Workshop on Navigating the Digital Business Frontier for Sustainable Financial Innovation (ICDEBA 2024), 2025, pp 369-376 from Springer

Abstract: Abstract This paper aims to give a detailed analysis of portfolio theory, a core theory in the current financial management field that enables the investor to determine the optimal combination of various assets in the portfolio to enhance returns while reducing risks. The research focuses on applying the identified portfolio theories to the sample of organisations of different sectors: ICT, health care and technology, and consumer goods. Historical financial data are used in the study context to compute the expected returns, standard deviations or coefficient of variations, and correlation coefficients expected in the case of the selected assets. On this basis, the weights of these assets are found optimally with the aid of mean-variance optimisation and the Sharpe ratio is used to measure the portfolio’s risk-adjusted return. Although some data restrictions might impact the accuracy of the findings, the work has profound implications for understanding the real-world applications of the portfolio theory. The research enhances the knowledge of investors on the way they can use portfolio theory and build portfolios that are good fits for their risk appetite and can enable them to achieve their financial objectives in today’s world.

Keywords: Portfolio Theory; Mean-Variance Optimisation; Risk-Adjusted Return; Sharpe Ratio; Asset Allocation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-652-9_38

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DOI: 10.2991/978-94-6463-652-9_38

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