Capital Allocation Analysis based on Markowitz Model and Index Model

Abstract

In finance, the question of how best to invest money to make more money is not an easy one. Some academics and hands-on practitioners have studied into this field for decades. This article delves into this issue, with a special focus on a detailed analysis of various investment plans. To get a better idea of which plan is better in a given situation, this paper dug through a bunch of data that included ten different company stocks from various industries, as well as daily revenue data for the S&P 500 over a 20-year history. This paper mainly looked at two key investment plans: the Markowitz model and the Index model. This paper did some simple math and theoretical research, and then this paper used the capabilities of Excel to help us find the best solution. And the analysis specially adopted a monthly summary method, minimized the complexity of the data on a horizon. And the study critically evaluating investment strategies within real-world constraints such as Regulation T, arbitrary "box" constraints, and scenarios involving no short positions or exclusion of broad indices.The finding shows that the performance of the assets chosen by Markowitz is better than Index Model under the given circumstances, which indicates the more complex model and addition data could probably provide a better result. This dissertation aims to contribute significantly to the field of finance by enhancing the understanding of portfolio management strategies, thus aiding in informed decision-making in the ever-evolving financial landscape.