An optimal asset allocation in a portfolio. Using Markowitz approach and Principal component analysis

      Аннотация: Investment landscape has been challenged a lot over the past years due to many economic fluctuations. After the economy has recovered from the consequences of Great Depression, the term risk in a portfolio context became a vital part of every investor’s decision making. Combining an optimal portfolio with the appropriate risk-return profile of different securities led to the widespread of active portfolio management theories. However, the increased demand for risky products was one of the major causes of the recent economic crisis since when investors have become more conservative and started turning more towards passive portfolio management theories whose results have proven to reflect the market more accurately. Thus, the intent of this work is to compare actively and passively managed portfolios based on the historical data and according to this analysis, come to the conclusion whether an actively managed portfolio can beat the benchmark by adjusting its individual weights of securities.

Ключевые слова: risk, Portfolio optimization, Principal Component Analysis, Markowitz