Selection of Optimal Portfolio: A Conceptual Study

Abstract

The Entire process of portfolio selection begins with portfolio construction, which can be simply viewed as a matter of selecting securities to include in a portfolio and determining appropriate weighting to each of the securities in the portfolio. This study briefly describes how an investor selects a portfolio from a set of efficient portfolios based on his/her level of risk aversion.

Here among other useful concepts Sharp model and Markowitz’s portfolio theory have been used. These two models are very much useful to select the optimal portfolio, which is also the most efficient one.

The Sharp Model is used to construct the portfolio with the securities, which have the most expected return with a desired risk. And the Markowitz Model indicates the proper goal of portfolio construction should be to generate a portfolio that provides the highest return for a given level of risk. A portfolio having such characteristics is called an efficient portfolio.

After the construction of efficient portfolio, an investor can choose his/her portfolio from the set of efficient portfolios. This selected portfolio from the set of efficient portfolios is called optimal portfolio, which has the best risk return combination.

DOI - https://doi.org/10.65525/SVUP.9788199651562.2026.66-82