A Study on Portfolio Construction using Sharpe Single Index Model

Abstract

Making wise decisions is essential to getting good returns on investments. These choices assist investors in deciding whether to invest at all and which stocks to include in their intended balanced investing strategy. Investors may use the Sharpe Index Model to build an ideal portfolio if they believe that stock volatility and market volatility are almost the same. Tools like Standard Deviation (S.D.), Variance (S.D.²), Beta-volatility, and Cut-off-Rate (ci) are used in the analysis. A number of variables, including beta, excess returns in relation to beta, unsystematic risk, and the cut-off point, are taken into account when determining the percentage of investment for each chosen securities. With less risk, investors can achieve higher profits thanks to this analysis.