Authors: Devatha Chenchu LS Harika
Abstract: Portfolio diversification and optimization are essential strategies for managing risk and enhancing returns in equity investments. This study examines portfolio diversification and optimization using selected stocks from the NIFTY 50 Index within the framework of Modern Portfolio Theory. The study adopts a descriptive and analytical research design and relies on secondary data of selected large-cap stocks representing different sectors of the Indian equity market. Risk–return characteristics are analyzed using descriptive statistics, while diversification benefits are assessed through correlation analysis. An optimized portfolio is constructed using the Markowitz mean–variance model, and portfolio performance is evaluated using risk-adjusted measures such as the Sharpe Ratio, Treynor Ratio, and Jensen’s Alpha. The empirical results reveal that individual stocks exhibit significant variation in risk and return, justifying the need for diversification. The optimized portfolio demonstrates superior performance by achieving higher returns with lower risk compared to equal-weighted portfolios and individual securities. The findings confirm that systematic portfolio diversification and optimization enhance investment efficiency and provide valuable insights for investors seeking stable and risk-adjusted returns in the Indian stock market.
