Author(s)

Jinglan Deng, Siyang Lyu

Corresponding Author

Jinglan Deng

ABSTRACT

This study selected six stocks of companies to help investors diversify their investment. In this paper, we use the ARMA model to predict the returns of the assets. Then modern portfolio theory is adopted to discovery the Maximum Sharpe Ratio Portfolio and the Minimum Volatility Portfolio. The results show that the ARMA model can be surely used to forecast the future return of the asset. Besides, through Monte Carlo simulation, we find that the asset of MSFT accounts for the largest proportion in the two interested portfolios. Finally, based on the asset’s weights, we compare the constructed portfolio with the actual market return, and the results show that our portfolios beat the market return and can bring certain financial benefits for investors. To sum up, the results benefit the related investors in financial markets.

KEYWORDS

ARMA, Portfolio theory, Monte Carlo simulation