A Comparative Study of Portfolio Optimization Methods for the Indian Stock Market
It addresses portfolio optimization for investors in the Indian stock market, but it is incremental as it applies existing methods to a specific dataset.
This study compared three portfolio optimization methods (MVP, HRP, HERC) on the Indian stock market using stocks from 15 sectors, evaluating them based on cumulative returns, annual volatilities, and Sharpe ratios over a test period from July 2022 to June 2023.
This chapter presents a comparative study of the three portfolio optimization methods, MVP, HRP, and HERC, on the Indian stock market, particularly focusing on the stocks chosen from 15 sectors listed on the National Stock Exchange of India. The top stocks of each cluster are identified based on their free-float market capitalization from the report of the NSE published on July 1, 2022 (NSE Website). For each sector, three portfolios are designed on stock prices from July 1, 2019, to June 30, 2022, following three portfolio optimization approaches. The portfolios are tested over the period from July 1, 2022, to June 30, 2023. For the evaluation of the performances of the portfolios, three metrics are used. These three metrics are cumulative returns, annual volatilities, and Sharpe ratios. For each sector, the portfolios that yield the highest cumulative return, the lowest volatility, and the maximum Sharpe Ratio over the training and the test periods are identified.