Final Paper: Selection of investment portfolios through multiple factors: Markowitz, Sharpe and Beta Neutral

The investor’s growing interest in the stock market motivates the development of techniques and methods looking forward to maximizing profits and minimizing risk. Optimizing a portfólio means to find the ideal relation between return and risk trough the weighted distribution of the total investment amount among the different chosen stocks. This study aimed to test the optimization techniques of Markowitz, Sharpe and Beta Neutral and check, which one of them obtains the best performance during an investment simulation by also comparing the results with the Bovespa index. The Beta Neutral method was the only one to have a performance that was above what was estimated for it. On the other hand, the results for both methods, Markowitz and Sharpe, were below what was expected for them underperforming also, compared to the Bovespa Index. One of the reasons for these last findings is that the optimization techniques often reduce the diversification of a portfólio, which increased the total risk of the investments. Another reason was that, both methods used past data to build statistics and used them as indicators of future trend, which demonstrated not to be effective.

Author: Alves, André Cherubini

Advisor: Kloeckner, Gilberto de Oliveira

Level: Undergraduate

Published Study: