MEAN-VARIANCE PORTFOLIO OPTIMIZATION FOR EMDE AND MTDL STOCKS: A MARKOWITZ APPROACH
DOI:
https://doi.org/10.25134/digibe.v4i2.609Keywords:
portfolio, mean–variance , Markowitz model, return, Risk ManagementAbstract
Constructing an optimal portfolio is a crucial step for investors in balancing the trade-off between expected return and investment risk. This study aims to construct an optimal portfolio comprising two stocks, EMDE and MTDL, by applying the Markowitz mean-variance model to minimize return variance at a specific return level. The methodology employs mean-variance optimization, estimating expected return, variance, and covariance based on historical return data for both stocks to determine efficient portfolio weights. The analysis reveals that the optimal portfolio consists of 19.27% EMDE stock and 80.73% MTDL stock. This combination yields an expected portfolio return of 1.33% with a return standard deviation of 8.43%, reflecting a more efficient risk-return profile compared to an allocation in a single stock. These findings indicate that diversification between EMDE and MTDL can improve portfolio risk characteristics without significantly sacrificing returns. Consequently, investors are advised to consider this combination as part of their asset allocation strategy, particularly those with moderate risk preferences who prioritize mean-variance efficiency. This study provides empirical evidence regarding the application of the Markowitz model in the Indonesian stock market and serves as a reference for future research involving a broader range of assets and data periods.
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