PORTFOLIO OPTIMIZATION ON STOCKS LISTED IN LQ45 INDEX USING MARKOWITZ AND SINGLE INDEX METHOD

• Main Author: Bernoully S Jefons, Newton
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/55054
• Institution: Institut Teknologi Bandung

In 2020, a pandemic of Covid-19 had hit many countries and created a crisis. Indonesia is one of the countries affected by this pandemic; it caused negative growth in Gross Domestic Product, increased unemployment, and slow inflation, indicating a low purchasing power. The pandemic’s impact has also hit the Indonesian capital market, which has experienced a deep correction in the last five years. The government has done out various fiscal and monetary stimuli to maintain economic stability. However, this condition is still uncertain. In this case, business executors need to be careful in managing their investments, especially in equity investment, because economic conditions and market sentiment strongly influence the equity market. One way to manage assets is by analyzing the portfolios’ composition that still can earn high profit with a minimum risk. Two models that are commonly used in portfolio calculation are the Markowitz method and the Single Index method. Based on portfolio diversification, these methods aim to produce a return and the risks that may be obtained. The Markowitz model calculates the covariance using a complex variance-covariance relationship, whereas the Single Index Model is calculated using both market risk and the firm’s unsystematic risk. This final project used five years of monthly adjusted closed price data on the Indonesia Stock Exchange downloaded from yahoo finance from the stocks listed in the LQ45 index from December 2015 to December 2020. The portfolio is analyzed using the Markowitz model and the Single Index model. 15 selected stocks are included in the portfolio. The Markowitz model produces 15 portfolio simulations with one optimum Portfolio: Portfolio 9 with a return of 26.52% annually and a standard deviation of 19.29%. The composition are 73.92% of BBCA; 14.05% of ANTM, and 12.03% of PTBA. The Single Index Method produces a portfolio with a return of 25.89% annually, with a standard deviation of 16.58%. The compositions are 61.79% of BBCA, 4.77% of BBRI; 8.61% of ANTM; 6.74% of INCO; 6.33% of ADRO, and 12.02% of PTB. Both models consistently produce results that sectors that can still have the potential to provide benefits are the Finance and mining, for Bank, Metal and Mineral Mining, and Coal Mining industries.