A Study on Sharpe’s Single Index Model and Its Application to Build an Optimal Portfolio with Selected Stocks of Nifty 50 Index
DOI:
https://doi.org/10.37591/njfpm.v5i1.888Keywords:
Sharpe’s Single Index Model, Optimal Portfolio Construction, Cut off rate, Systematic Risk and Unsystematic Risk, Return and Risk Analysis.Abstract
The primary goal of an investor is to generate enough returns with minimum risk. The investor should
have complete knowledge of the investment in order to achieve the goals of achieving high returns. If
an investor does not achieve reasonable returns with the agreed risk, then it is better not to invest in
those securities, according to an analysis using Sharpe's single index model. Therefore, Sharpe's
single index model helps an investor choose a portfolio before making an investment decision. The
main objective of this project is to evaluate selected stocks from a variety of sectors using Sharpe's
single index model, which helps the investor to determine the rate of return and build a portfolio in
nifty terms. The project report includes monthly closing prices of 18 companies comprising 3 firms
from 6 sections, selected from 1st January 2016 to 31St December 2020 along with the closing price
of the NSE Index. Using Sharpe's single index model, computed the required rate return and risk for
the selected concerns. Every investor experiences dilemma for selecting various stocks for his
portfolio. Investors will run into difficulties while deciding how much money to invest in each
security. Sharpe's single index can be used to create the best portfolio and help investors escape
confusion. The study concludes that investment in securities is better than investing in banks to get
maximum returns.
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