Robust Statistical Portfolio Investment in Modern Portfolio Theory: A Case Study of Two Stocks Combination in Kuala Lumpur Stock Exchange
Nashirah Abu Bakar1, Sofian Rosbi2
1Nashirah Abu Bakar, Islamic Business School, College of Business, Universiti Utara Malaysia, Kedah Malaysia.
2Sofian Rosbi, Department of Mechatronic Engineering, Universiti Malaysia Perlis, Arau Malaysia.
Manuscript received on 01 September 2019 | Revised Manuscript received on 10 September 2019 | Manuscript Published on 23 September 2019 | PP: 214-221 | Volume-8 Issue-5C, May 2019 | Retrieval Number: E10310585C19/19©BEIESP | DOI: 10.35940/ijeat.E1031.0585C19
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Abstract: Modern portfolio theory is a theory of diversification in portfolio selection to achieve lower risk for a target expected return. Therefore, the objective of this study is to reducing investment risk by developing diversification of portfolio investment using combination of two share prices that exhibits negative or low positive correlation. Data selected in this study are the rate of return for two companies that listed in Kuala Lumpur Stock Exchange (KLSE). The selected companies are Ajinomoto Malaysia Berhad and UMW Holdings Berhad. The methodologies involved in this project are expected return calculation, statistical normality checking, correlation diagnostics and expected variance evaluation for investment portfolio. The Pearson correlation analysis shows correlation value is -0.879. This finding concludes there is significant and strong negative correlation between share price return of UMW Holdings Berhad and Ajinomoto Malaysia Berhad. Result indicates the efficient frontier for investment is started with 42.5% investment in Ajinomoto and 57.5% investment in UMW. The expected portfolio return using this investment combination is 0.14 percentages. Meanwhile, the highest expected return on efficient frontier is 19.17 percentages. The investment combination for maximum return is 100% in Ajinomoto share price. The implication of this study is it will help investors to develop better decision about their portfolio investment with lower risk for a target of expected return.
Keywords: Investment, Modern Portfolio Theory, Correlation Diagnostics, Efficient Frontier.
Scope of the Article: Social Sciences