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Enough is Enough: Sufficient number of securities in an optimal portfolio
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
2016 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

This empirical study has shown that optimal portfolios need approximately 10 securities to diversify away the unsystematic risk. This challenges previous studies of randomly chosen portfolios which states that at least 30 securities are needed. The result of this study sheds light upon the difference in risk diversification between random portfolios and optimal portfolios and is a valuable contribution for investors.

The study suggests that a major part of the unsystematic risk in a portfolio can be diversified away with fewer securities by using portfolio optimization. Individual investors especially, who usually have portfolios consisting of few securities, benefit from these results. There are today multiple user-friendly software applications that can perform the computations of portfolio optimization without the user having to know the mathematics behind the program. Microsoft Excel’s solver function is an example of a well-used software for portfolio optimization. In this study however, MATLAB was used to perform all the optimizations.

The study was executed on data of 140 stocks on NASDAQ Stockholm during 2000-2014. Multiple optimizations were done with varying input in order to yield a result that only depended on the investigated variable, that is, how many different stocks that are needed in order to diversify away the unsystematic risk in a portfolio. 

Place, publisher, year, edition, pages
2016. , 37 p.
Keyword [en]
Optimal Portfolio, Random Portfolio, Optimization, Modern Portfolio Theory, Variance, Covariance, Diversification, Relative Standard Deviation
National Category
Business Administration
Identifiers
URN: urn:nbn:se:uu:diva-298462OAI: oai:DiVA.org:uu-298462DiVA: diva2:946256
Educational program
Bachelor Programme in Business and Economics
Supervisors
Examiners
Note

Osäker på examinatorns namn, tog namnet på den person som skickade mejl om betyg.

Available from: 2016-07-06 Created: 2016-07-04 Last updated: 2016-07-06Bibliographically approved

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Enough is Enough(545 kB)61 downloads
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CiteExportLink to record
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Citation style
  • apa
  • ieee
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Language
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