Application of the Markowitz model in Construction of Optimal Portfolio in the US stock market

Abstract

The optimal portfolio has always been a popular topic in the financial field, and there are many different models to choose from. The Markowitz model is one of the commonly used models. This paper aims to find the optimal portfolios by applying the Markowitz model to a group of ten different stocks from three different sectors and comparing the model's performance under different constraints. In this paper, the Markowitz model is adopted for analysis, and the model is compared under the two constraints by calculating the minimum variance frontier and the highest expected return, and finally finds the best investment portfolio. The study concludes that the model behaves better under the SPX index constraint and has a higher expected return. Therefore, the SPX index should be considered when constructing an optimal portfolio of multiple different stocks to obtain a higher expected return.