Selecting and Weighting Mechanisms in Stock Portfolio Design Based on Clustering Algorithm and Price Movement Analysis
The fundamental stages in designing a stock portfolio are each stock’s selection and capital weighting. Selection and weighting must be conducted through diversification and price movement analysis to maximize profits and minimize losses. The problem is how the technical implementations of both are...
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| Format: | Article |
| Language: | English |
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MDPI AG
2023-10-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/11/19/4151 |
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| author | Titi Purwandari Riaman Yuyun Hidayat Sukono Riza Andrian Ibrahim Rizki Apriva Hidayana |
| author_facet | Titi Purwandari Riaman Yuyun Hidayat Sukono Riza Andrian Ibrahim Rizki Apriva Hidayana |
| author_sort | Titi Purwandari |
| collection | DOAJ |
| description | The fundamental stages in designing a stock portfolio are each stock’s selection and capital weighting. Selection and weighting must be conducted through diversification and price movement analysis to maximize profits and minimize losses. The problem is how the technical implementations of both are carried out. Based on this problem, this study aims to design these selection and weighting mechanisms. Stock selection is based on clusters and price movement trends. The optimal stock clusters are formed using the K-Means algorithm, and price movement analyses are carried out using the moving average indicator. The selected stocks are those whose prices have increasing trends with the most significant Sharpe ratio in each cluster. Then, the capital weighting for each preferred stock is carried out using the mean-variance model with transaction cost and income tax. After designing the mechanism, it is applied to Indonesia’s 80 index stock data. In addition, a comparison is conducted between the estimated portfolio return and the actual one day ahead. Finally, the sensitivity of investors’ courage in taking risks to their profits and losses is also analyzed. This research is expected to assist investors in diversification and price movement analysis of the stocks in the portfolios they form. |
| first_indexed | 2024-03-10T21:39:57Z |
| format | Article |
| id | doaj.art-8d007e938013420b8dbc035c77495d90 |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-10T21:39:57Z |
| publishDate | 2023-10-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-8d007e938013420b8dbc035c77495d902023-11-19T14:44:03ZengMDPI AGMathematics2227-73902023-10-011119415110.3390/math11194151Selecting and Weighting Mechanisms in Stock Portfolio Design Based on Clustering Algorithm and Price Movement AnalysisTiti Purwandari0Riaman1Yuyun Hidayat2Sukono3Riza Andrian Ibrahim4Rizki Apriva Hidayana5Department of Statistics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Sumedang 45363, IndonesiaDepartment of Mathematics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Sumedang 45363, IndonesiaDepartment of Statistics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Sumedang 45363, IndonesiaDepartment of Mathematics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Sumedang 45363, IndonesiaDoctoral Program of Mathematics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Sumedang 45363, IndonesiaMagister Program of Mathematics, Faculty of Mathematics and Natural Sciences, Universitas Padjadjaran, Sumedang 45363, IndonesiaThe fundamental stages in designing a stock portfolio are each stock’s selection and capital weighting. Selection and weighting must be conducted through diversification and price movement analysis to maximize profits and minimize losses. The problem is how the technical implementations of both are carried out. Based on this problem, this study aims to design these selection and weighting mechanisms. Stock selection is based on clusters and price movement trends. The optimal stock clusters are formed using the K-Means algorithm, and price movement analyses are carried out using the moving average indicator. The selected stocks are those whose prices have increasing trends with the most significant Sharpe ratio in each cluster. Then, the capital weighting for each preferred stock is carried out using the mean-variance model with transaction cost and income tax. After designing the mechanism, it is applied to Indonesia’s 80 index stock data. In addition, a comparison is conducted between the estimated portfolio return and the actual one day ahead. Finally, the sensitivity of investors’ courage in taking risks to their profits and losses is also analyzed. This research is expected to assist investors in diversification and price movement analysis of the stocks in the portfolios they form.https://www.mdpi.com/2227-7390/11/19/4151selectingweightingstockportfolioclusteringprice movement analysis |
| spellingShingle | Titi Purwandari Riaman Yuyun Hidayat Sukono Riza Andrian Ibrahim Rizki Apriva Hidayana Selecting and Weighting Mechanisms in Stock Portfolio Design Based on Clustering Algorithm and Price Movement Analysis Mathematics selecting weighting stock portfolio clustering price movement analysis |
| title | Selecting and Weighting Mechanisms in Stock Portfolio Design Based on Clustering Algorithm and Price Movement Analysis |
| title_full | Selecting and Weighting Mechanisms in Stock Portfolio Design Based on Clustering Algorithm and Price Movement Analysis |
| title_fullStr | Selecting and Weighting Mechanisms in Stock Portfolio Design Based on Clustering Algorithm and Price Movement Analysis |
| title_full_unstemmed | Selecting and Weighting Mechanisms in Stock Portfolio Design Based on Clustering Algorithm and Price Movement Analysis |
| title_short | Selecting and Weighting Mechanisms in Stock Portfolio Design Based on Clustering Algorithm and Price Movement Analysis |
| title_sort | selecting and weighting mechanisms in stock portfolio design based on clustering algorithm and price movement analysis |
| topic | selecting weighting stock portfolio clustering price movement analysis |
| url | https://www.mdpi.com/2227-7390/11/19/4151 |
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