Efficient frontier and portfolio optimization of five selected stocks: a quantitative approach

Abstract

The effective frontier and portfolio optimization of five chosen stocks—Grameenphone, Marico, Berger, Crown Cement, and Padma Oil—is highlighted in this research. Data from December 1, 2019, to November 30, 2024, was used for technical analysis to justify the stock pick. Diversifying the portfolio and identifying the best stock combination to provide investors with the maximum return at the lowest risk are the primary goals. My internship at EBL Asset Management is discussed in the report's first section. Information regarding my duties and contributions to the company are included. The difficulties I encountered and my suggestions for the organization and students are also covered. The business's functional departments—Finance, Accounting, Marketing, HRM, and Operations—have their methods and results examined in the report's organization section. Additionally, a SWOT analysis of the firm and an industry favourability study utilizing Five Porter's Forces have been conducted. These evaluations have led to the provision of recommendations. The approach has also been examined, as have the scope and restrictions. In the project section, technical analysis was done of five chosen stocks- Grameenphone, Crown Cement, Marico, Berger Paints and Padma Oil. Using data from Dec 1, 2019, to Nov 30, 2024, I produced a price volume chart that illustrates the connection between an asset's trading volume and price change. A return chart was also created to display the stock's performance over time. To illustrate the frequency of returns for each stock and evaluate volatility, a return distribution chart was created over time. To further illustrate the market risk of each stock by expressing its beta, a scatter diagram was created using a regression line. Additionally, risk and yearly returns for each of the five equities were calculated. Then, to optimize the portfolio, we assessed the associations between various assets by creating a variance-covariance matrix. Following that, a simulation was used to create 10,000 possible combinations to create an effective frontier that assisted in determining the portfolio's maximum and lowest variance. Lastly, diversity has significantly impacted revenues even if it has effectively reduced risk. By striking a balance between the two, an effective portfolio strategy would preserve a higher Sharpe ratio. Combinations with larger allocations to CROWN or other assets that provide a positive contribution should get the most attention and reducing the weights of assets that reduce returns, such as MARICO or PADMAOIL, and reviewing the inclusion of low-return assets.