Optimal Portfolio Strategies in Chinese Equity Market

Abstract

In the dynamic landscape of financial markets, the strategic construction of investment portfolios is pivotal for investors aiming to maximize returns while managing risk. This research delves into the optimization of portfolios by focusing on two key objectives: maximizing the Sharpe ratio and minimizing volatility. Through the analysis of seven representative Chinese stocks, this study introduces a forward-looking approach to portfolio construction that adapts to current market conditions. By employing a comprehensive set of descriptive statistics and a rigorous out-of-sample testing methodology, the research constructs and validates two distinct portfolios against the CSI 300 Index. The findings reveal a nuanced understanding of risk-adjusted returns and provide actionable insights for investors seeking to refine their portfolio strategies. This paper contributes to the financial management literature by offering a practical framework that addresses existing gaps and highlights the importance of incorporating market dynamics into portfolio optimization. The study's robust methodology and its application to a diverse set of stocks provide a solid foundation for future research to build upon, with the potential to enhance investment performance across varying market cycles.