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August 19, 2025Open Access

Portfolio Optimization Based On 6 American Stocks

Key Points

The optimal portfolio experienced a cumulative return of -18.47% over two years, while the SPY reported a return of 53.26%.
Using historical data from January 2020 to December 2022, the portfolio was constructed based on maximum Sharpe ratio principles.
Though the in-sample model produced the highest Sharpe ratio, it failed to yield similar results out-of-sample due to market volatility.
The research highlights the importance of stable market indices over custom portfolios in unpredictable market conditions.

Abstract

This paper constructs an optimal portfolio and compares the portfolio with the SPDR S&P 500 ETF Trust (SPY) using the maximum Sharpe ratio model. Six stocks from different sectors in the S&P 500 were selected: Apple Inc. (AAPL), JPMorgan Chase & Co. (JPM), Johnson & Johnson (JNJ), Nike Inc. (NKE), ExxonMobil (XOM), and Boeing (BA). Historical monthly data from January 2020 to December 2022 were used to calculate the optimal portfolio weights. The portfolio's cumulative return over the following two years (2023–2024) was -18.47%. In contrast, the SPY achieved a return of 53.26%. Although the model generated the highest Sharpe ratio within the in-sample period, the result did not extend to the out-of-sample test. The portfolio underperformed due to unstable returns, market shifts, and high exposure to volatile stocks. The findings indicate that market indices can provide more stable returns than individually constructed optimal portfolios in real investment environments.

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