An Analysis of Cross-sectional Investment Portfolio with the Consideration of Risk and Return

¹ School of Statistics and Mathematics Central University of Finance and Economics, Beijing, China
² School of Finance University of Delaware Newark, Delaware, USA
³ School of Finance and Accounting University of New South Wales Sydney, New South Wales, Australia

^a 3303203578@qq.com
^b kuroyuki@udel.edu
^c hui.li2@student.unsw.edu.au
^† These authors contributed equally.

Abstract

Recently, investors are requiring diversified options on the security investment, while the sudden incidents, such as the trade war and the pandemic of COVID-19, make the investment market more volatile and turbulent. Thus, this article will discuss how investors can make rational investment decisions by using the Markowitz’s portfolio theory and its Mean-Variance Model in the U.S. investment market, in order to meet the requirement of diversification and to earn relatively stable profit. Therefore, the data spanning from 2016 to 2020 is used to provide investors with more reliable and comprehensive investment information. Meanwhile, a novel cross-section portfolio is given to fulfill the diversified and innovative investment needs of investors. The industries included are car industry, biopharmaceutical industry and financial service industry. Furthermore, the results reflect the actual situation to a large extent, including the weakness in the US market in December 2018 due to uncertain Fed policy and the impact of the COVID-19 in 2020. In this article, an Intra-Industry analysis based on the net asset values of the three targeted industries will be carried out first, then the Macro analysis will be conducted based on the optimal portfolio of the three industries. A conclusion of the findings is included at the end of the article.