What is Portfolio Optimization?

Selecting Best Portfolio or Efficient Portfolio

Which will provide maximum possible return while keeping the risk in control

Portfolio Optimization Strategy

Maximize Sharpe Ratio
This implies that you are going to maximize excess return while keeping the standard deviation fixed

Sharpe Ratio: The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
Greater the Value of Sharpe Ratio, more attractive risk adjusted returns

Variance-CoVariance
Variance: Statistical measure of how much a set of observations differ from each other
Dispersion of a set of data points around their mean value
High Variance: Greater variability in the data therefore is indicative of risk

Co Variance: Measures directional relationship between assets

deviation fixed

unit of volatility or total risk.

Date Reliance In TCS Axis Bank Britannia
5/1/2018 -4.4% -1.4% 5.5% 7.5%
6/1/2018 5.5% 6.1% -6.4% 4.9%
7/1/2018 22.0% 5.0% 7.8% 5.3% Assumptions
8/1/2018 4.7% 7.1% 18.0% 4.6% risk-free rate 0.05%
9/1/2018 1.3% 5.1% -5.5% -13.6%
10/1/2018 -15.6% -11.2% -5.0% -3.1%
11/1/2018 10.0% 1.6% 7.4% 12.3% Reliance Ind TCS
12/1/2018 -4.0% -3.8% -0.9% -1.7% Expected Returns 1.02% 0.33%
1/1/2019 9.4% 6.4% 16.6% 2.6%
2/1/2019 0.3% -1.5% -1.8% -4.4%
3/1/2019 10.7% 0.9% 9.5% 0.9% Variance-Covariance Matrix
4/1/2019 2.2% 12.9% -1.3% -6.1% Reliance In
5/1/2019 -4.5% -2.8% 5.4% 0.9% Weights 0.25
6/1/2019 -5.8% 1.4% 0.0% -6.1% Sec 1 0.25 0.008088
7/1/2019 -6.9% -1.0% -16.6% -5.1% Sec 2 0.25 0.003036
8/1/2019 7.1% 2.4% -1.5% 3.7% Sec 3 0.25 0.007131
9/1/2019 6.7% -7.1% 3.2% 9.6% Sec 4 0.25 0.003159
10/1/2019 9.9% 8.1% 7.5% 11.0%
11/1/2019 5.9% -9.5% 0.4% -6.4% Contribution to Variance 0.001338
12/1/2019 -2.4% 5.3% 2.0% -1.0%
1/1/2020 -6.8% -3.8% -3.3% 5.7%
2/1/2020 -5.9% -3.8% -4.4% -7.2%
3/1/2020 -16.2% -8.7% -45.6% -9.5%
Axis Bank Britannia
-0.40% 0.21%

Sum of Weights 1
Portfolio Expected Return 0.0029
TCS Axis Bank Britannia Portfolio SD 0.069183
0.25 0.25 0.25 Expected Sharpe Ratio 0.034695
0.0030359 0.007131 0.003159
0.0038616 0.003343 0.000823 Optimal Weights
0.0033434 0.015576 0.004657 Sec 1 1
0.0008231 0.004657 0.004755 Sec 2 0
Sec 3 0
0.0006915 0.001919 0.000837 Sec 4 0
 Returns
Weights A B C D
A 0.32 0.001 0.002 0.008 0.1
B 0.15
C 0.12
D 0.41
=MMULT(B6:B9,E6:H6)