Performance Evaluation of Equal-Weight Portfolio and Optimum Risk
  Portfolio on Indian Stocks
Abhiraj Sen Jaydip Sen
Designing an optimum portfolio for allocating suitable weights to its
constituent assets so that the return and risk associated with the portfolio
are optimized is a computationally hard problem. The seminal work of Markowitz
that attempted to solve the problem by estimating the future returns of the
stocks is found to perform sub-optimally on real-world stock market data. This
is because the estimation task becomes extremely challenging due to the
stochastic and volatile nature of stock prices. This work illustrates three
approaches to portfolio design minimizing the risk, optimizing the risk, and
assigning equal weights to the stocks of a portfolio. Thirteen critical sectors
listed on the National Stock Exchange (NSE) of India are first chosen. Three
portfolios are designed following the above approaches choosing the top ten
stocks from each sector based on their free-float market capitalization. The
portfolios are designed using the historical prices of the stocks from Jan 1,
2017, to Dec 31, 2022. The portfolios are evaluated on the stock price data
from Jan 1, 2022, to Dec 31, 2022. The performances of the portfolios are
compared, and the portfolio yielding the higher return for each sector is
identified.