Open AccessRobust Hybrid Optimization Method to Reduce Investment Portfolio Risk Using Fusion of Modern Portfolio Theory and Genetic Algorithm
Author(s) -
Nashirah Abu Bakar,
Sofian Rosbi
Publication year - 2019
Publication title -
international journal of engineering and advanced technology
Language(s) - English
Resource type - Journals
ISSN - 2249-8958
DOI - 10.35940/ijeat.f1023.0986s319
Subject(s) - portfolio , portfolio optimization , modern portfolio theory , investment (military) , business , post modern portfolio theory , genetic algorithm , foreign portfolio investment , asset allocation , computer science , actuarial science , return on investment , replicating portfolio , finance , economics , open ended investment company , microeconomics , machine learning , production (economics) , politics , political science , law
Main objective of this study is to develop hybrid optimization method for reducing investment portfolio risk. The methods selected in this study are the combination of Modern Portfolio Theory (MPT) and genetic algorithm optimization approach. Three stocks from Malaysian Stock Exchange are selected in developing the investment portfolio namely Malayan Banking Berhad, Hap Seng Consolidated Berhad and Top Glove Corporation Berhad. Result indicates the modern portfolio theory can give optimal portfolio weightage with maximum return for tolerate level of investment risk. In addition, genetic algorithm enhanced the optimal searching method to find global minimum of investment risk. Result shows the minimum portfolio risk in objective function is 2.122118 with implementation genetic algorithm optimization. The optimal combination of portfolio investment is 32.24 % in asset A (Malayan Banking Berhad), 52.37 % in asset B (Hap Seng Consolidated Berhad), and 15.30 % in asset C (Top Gove Corporation Berhad). The important of this study is it will assist investor in making better decision to optimize their return for given level of investment risk. Furthermore, this hybrid method provides a better accuracy of prediction for return of investment and portfolio risk.