Performance of Optimum Sharp Portfolio and CAPM Portfolio for Sustainability of Small Investors

Abstract

Purpose: Investment growth is essential for the prosperity of an economy. Saved money is used for investment. It is scarce in a country like India. So, optimal use of this saved fund is required. Markowitz stated that best use is possible by creating a diversified portfolio to minimize risk. Ordinary people have limited funds and knowledge of the stock market. So diversified portfolio should be formed by purchasing a minimum number of stocks. Objective: of this research analysis is to form optimum portfolios by using different methods. They are compared to know the best one which can provide the maximum return per unit of risk by using the minimum number of stocks in the portfolio formation. The uniqueness of this research is to identify numeric advantages in optimum portfolio formation from an Indian context. Methodology: Analysis is based on daily price movement data of the Nifty 50 index. An optimum portfolio is formed first by using the Sharp optimum portfolio method, where stocks are selected on the basis of cut off rate C with weight factor Xi. Then selected stocks of Sharp model are combined by using the CAPM beta diversification technique. Risk minimizing weight factors are used here. These two portfolios are compared to judge minimum risk achievement with low volume of stocks. Conclusion: Optimum portfolios performances are compared again with actual data from next year. From this research analysis, beta diversification was found to be the best option. Limitation: More than two years analysis can give solidarity in the conclusion.