Application of Single Index Model to Determine Optimal Stock Portfolio (A Case Study on IDX30 in 2022)

Abstract

Stock represent proof of ownership or participation of an individual or entity in a company. Investors gain profits from shares through capital gains and dividends. The difficulty in selecting an optimal composition of a stock portfolio is a major concern for investors. This study aims to determine the optimal composition of a stock portfolio, calculate the expected returns in the future, and assess the potential risks that investors may encounter later on. The data for this research consists of stocks listed on the IDX30 Index throughout the year 2022, which consistently appear in every six-month evaluation. The analysis is conducted using a single-index model. Based on the findings of this study, the following ten stocks are identified as the optimal portfolio constituents: KLBF with a weight of 17.20%, BBRI with a weight of 17.18%, BBCA with a weight of 17.08%, PTBA with a weight of 12.46%, BBNI with a weight of 9.89%, UNVR with a weight of 8.33%, INKP with a weight of 8.66%, ICBP with a weight of 5.56%, BMRI with a weight of 3.25%, and UNTR with a weight of 0,39%. The expected return from the formed portfolio is 0,1% per day, with a corresponding risk of 0,004%.