Portfolio theory in investment decision making: Evidence from NVIDIA and Costco

Abstract

Investors always seek to get returns in the financial market. However, due to the risk-averse nature of investors, they wanted to gain the maximum return with the lowest risk. Therefore, many investors diversify their portfolios to mitigate the existing risk. NVDA and COST, from NVIDIA Corporation and Costco Whole Sales Corporation, are two pervasive stocks in the market. This research will construct a tool for investors to balance risk and return through several variables, for example, expected return, standard deviation, and Sharpe ratio, for all possible portfolio combinations so that investors can acknowledge the best outcome at their preferred level of risk or reduce risk while meeting their requirements. In addition, this research will also provide a method to build the most efficient portfolio that includes NVDA and COST, which may become a practical reference for many investors. Modern portfolio theory is selected as the theory base of this article, and the Excel Solver is operated to investigate the portfolio’s efficiency. By dealing with the historical data of NVDA and COST between 2014/1/2 and 2023/12/29, a series of calculations, and using the Excel solver, it can be concluded that (23.875%, 76.125%) is the optimal combination of weight of portfolio for investors with the most significant Sharpe ratio.