An Optimal Portfolio Construction by Using Sharpe's Index Model

An attempt is made here to get an insight into the idea embedded in SHARPE’s Single Index Model andto construct an optimal portfolio empirically using this model. While making investment decisionsparticularly in EQUITY MARKET, risk and return plays an important role, perhaps the most relevantquestion is which stock should be placed in the portfolio matters a lot. A good combination of equitystocks in the portfolio will give better return for a given level of risk. SHARPE’s SINGLE INDEXModel method involves selecting a cut-off rate for inclusion of securities in a portfolio. Taking BSESensex as a market performance index with sixteen stocks of eight different sectors and consideringmonthly indices along with the monthly prices of sample securities for the period of April 2018 to Mar2023. Proportion of investment in each of the selected securities is computed based on beta value,Variance, Corelation unsystematic risk, excess return to beta ratio and cut-off rate of each of securities.