Abstract :

Generation Z retail investors, characterized by a higher risk tolerance for risky assets, seek to balance return and risk in their portfolio of investments. To mitigate market risk, they employ portfolio selection models to utilize Markowitz’s Diversification Principle. By using a portfolio selection model (an allocation model) for a risky asset, it helps investors allocate their investment budget to their selected stocks. For that reason, this study compares the Single Index Model and the Constant Correlation Model for portfolio allocation using stocks listed in the LQ45 index during stable (2018–2019) and global crisis (2020–2021) conditions. Results indicate the robustness of the constant correlation model in the stable condition scenario. During crises, however, both models can outperform the risk-free rate. Model assumptions play a crucial role in portfolio outcomes, emphasizing the importance of aligning investments with personal risk-return preferences. While no universal model fits all, these methods offer valuable options for tailoring risk-return profiles.

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Keywords :

Constant Correlation Model; Diversification; LQ45; Optimal Portfolio; Single Index Model

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